Today's forex news: US rates slide, dollar losses continue.
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The dominant story in the foreign exchange markets has been the US dollar's persistent drop, as the DXY plummeted another 0.6 percent to the 97.80s, where it is now testing mid-March lows more than 1.5 percent below weekly highs. Wednesday's US data releases (ADP employment and final Q4 GDP and Core PCE estimates) were robust, which, paired with fresh hawkish Fed rhetoric, contributed to cementing expectations for a 50 basis point rate hike in May.
This, however, was inadequate to shield the US dollar from a bearish cocktail of
1) negative rate differential changes against the backdrop of decreasing US rates,
2) month/quarter-end selling, and
3) excitement over the Russo-Ukrainian peace negotiations.
Regarding the latter, while skepticism over apparent progress in the negotiations this week remains high in light of Russia's ongoing attack on Ukraine, FX markets appear to be pricing in a more hopeful geopolitical scenario.
The EUR/USD pair achieved its highest level since the beginning of the month on Wednesday, climbing 0.7 percent on the day and 1.9 percent from earlier weekly lows of sub-1.0950. The euro received some independent support from the continuous rise in short-end Eurozone rates, as traders upped their expectations on ECB tightening in the aftermath of Spain's and Germany's latest preliminary March HICP inflation figures, which surprised to the upside once again.
While the euro outperformed the rest of the G10, it was far from the best, with the Swiss franc and Japanese yen taking first and second place, respectively. USD/JPY slid 0.8 percent to 122.00, a direct outcome of the day's decline in US rates, leaving it more than 2.5 percent below weekly highs as traders analyzed recent Japanese policymaker comments on recent currency losses. Meanwhile, USD/CHF witnessed an exceptionally steep 0.9 percent slide from over 0.9300 to the low 0.9200s, bringing it within a few pips of breaching its 200-Day Moving Average.
In comparison to the other G10 currencies, the kiwi gained from positive domestic data (New Home Building Consents and Business Sentiment), with the NZD/USD pair recovering slightly more than 0.5 percent to the upper 0.6900s. The Australian currency, like the loonie, has struggled to benefit from higher oil prices, with AUD/USD trading in a mediocre range about 0.7500 (still near multi-month highs) and USD/CAD hovering near 1.2500 and near-annual lows.
Finally, sterling was uneven, with GBP/USD rising to the mid-1.3100s but failing to hold above its 21-Day Moving Average for a sixth consecutive session, while EUR/GBP touched its highest level in over three months near 0.8500.
While the forex market's focus will remain on geopolitical developments and their possible impact on risk appetite/the commodities complex, economic data will remain a prominent driver, with traders also taking into account G10 monetary policy divergence. The OPEC+ meeting, the US February Core PCE, and Canadian January GDP numbers are the key events to watch in the next session, ahead of Friday's release of the US employment report, the week's most significant event. Eurozone HICP inflation data are also due on Friday and are likely to show a strong increase, similar to what Spain and Germany reported on Wednesday.
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