USD falls against majors but broad demand still elevated
Daily Currency Update
The US dollar weakened against a basket of currencies on Friday, however the safe-haven currency remained supported by broad risk-off market sentiment and expectations of aggressive monetary policy tightening by the Federal Reserve.US Federal Reserve Chairman Jerome Powell, who was confirmed to stay on for a second four-year term by the Senate, suggested in an interview that there could be a potential 50bp interest rate hike in the next two Federal Reserve meetings, though as always this will be heavily data dependent.
University of Michigan's Consumer Sentiment Index fell to 59.1 in May from 65.2 in April, the lowest level since 2011. Analysts attribute the decline in consumer sentiment to numerous factors, including inflationary pressure, geopolitical risk and market instability. This could further drive continued demand for the US dollar as a safe haven asset.
The US Dollar Index was down 0.36% trading at 104.48 at the time of writing.
Key Movers
The euro rebounded slightly against the US dollar on Friday after plunging over 1% on Thursday on growing fears the continent is poised to tip into recession. The euro tumbled to its lowest level in nearly 20 years, breaking below the 1.05 handle yesterday with the risk of parity possible if we continue to see the pair slide. Europe’s gas futures lurched higher up 23% at one point, before giving up 50% of gains to settle 12% higher on the day. Reports that Russia has imposed sanctions on European energy companies raised new fears Moscow will seek to further restrict energy supplies in retaliation to Western support for Ukraine.EURUSD was trading at 1.0408 at the time of writing.Though the pound higher against the US dollar today, GBPUSD looked set to end the week at two-year lows. Currently trading at around 1.22, a level not since since May 2020. Since breaking down through 1.30, the pair has been falling consistently ever since and the road ahead for the pound looks like it could be equally bumpy. Yesterday GDP figures for the first quarter were released, coming in below some economists’ expectations at 0.8% vs.1% growth. This aligns with expectations of the UK economy slowing down and the current narrative from the Bank of England.
Expected Ranges
- EUR/USD: 1.0359 - 1.0417 ▲
- GBP/USD: 1.2168 - 1.224 ▲
- AUD/USD: 0.683 - 0.6922 ▲
- USD/CAD: 1.2929 - 1.3072 ▼