Weekly Update: US Dollar Undermined by a Dovish Fed, Pound Slides in spite of UK Reopening

The US Dollar came under broad pressure this week, mostly as a result of dovish commentary from Federal Reserve Chair Jerome Powell.

At the same time, the Pound found itself on the back foot this week as the reopening of the UK economy was offset by vaccine concerns and the shock stepping down of the Bank of England’s chief economist.

Pound Rocked by Vaccine Supply Concerns

GBP/EUR – Unchanged on the week’s opening levels

GBP/USD – Down one cent on the week’s opening levels

The Pound got off to a strong start this week as GBP investors were upbeat about the reopening of a large part of the UK economy.

However, these gains quickly faded following the news a key policy hawk at the Bank of England (BoE) would be stepping down, while concerns over potential disruption to the UK’s vaccine rollout and rising uncertainty over the upcoming Scottish Parliamentary election drove a sharp Sterling selloff at the end of the session.

Turning to next week, it looks to be a busy session for GBP investors who face a slew of high-impact UK data. Will some positive releases offer more robust support to the Pound next week?

Euro Lifted by USD Weakness

EUR/GBP – Up one pence on the week’s opening levels

EUR/USD – Up one cent on the week’s opening levels

The Euro rallied this week, with the single currency’s negative correlation with the US Dollar spurring it higher as the latter fell.

This upside in the Euro was further supported by the latest Eurozone retail sales figures, which printed well above expectations as sales growth rocketed up from –5.2% to 3% in February.

In the spotlight next week will be the European Central Bank’s (ECB) latest rate decision. No policy changes are expected this month, but will the bank express concern over the Eurozone’s economic recovery in light of Europe’s coronavirus resurgence?

US Dollar Dented by a Dovish Fed

USD/GBP – Unchanged on the week’s opening levels

USD/EUR – Down one cent on the week’s opening levels

The US Dollar was mostly on the defensive this week as the currency was undermined by dovish comments from Federal Reserve Chair Jerome Powell, who dismissed concerns over rising inflation and suggested the next rate hike is unlikely to take place until at least the end of 2022.

However, the ‘Greenback’ clawed back some of its losses towards the end of the week in response to some extremely positive domestic data releases and slight weakening of market risk appetite.

Looking ahead, the US Dollar may be in a position to rebound next week as increasing concerns over the restrictions being placed on certain coronavirus vaccines looks set to sour market sentiment

Australian Dollar Surges as Risk Appetite Improves

AUD/GBP – Up one pence on the week’s opening levels

AUD/USD – Up one cent on the week’s opening levels

The Australian Dollar struck higher this week, being bolstered by broad USD weakness and news that coronavirus restrictions in Queensland would be lifted earlier than expected.

These gains were supported by some positive data releases, most notably March’s jobs figures, which reported a larger-than-expected fall in unemployment.

In focus next week will be Australia’s latest retail sales figures, with the ‘Aussie’ potentially extending its recent gains if sales growth rebounded in March.

Key Data

Apr 20 AUD RBA Minutes

Apr 20 GBP Unemployment Rate (Feb)

Apr 21 AUD Retail Sales (Mar)

Apr 21 GBP Inflation Rate (Mar)

Apr 22 EUR ECB Rate Decision

Apr 22 USD Initial Jobless Claims (17/Apr)

Apr 22 USD Existing Home Sales (Mar)

Apr 23 AUD Services PMI (Apr)

Apr 23 EUR Manufacturing PMI (Apr)

Apr 23 EUR Services PMI (Apr)

Apr 23 GBP Services PMI (Apr)

Apr 23 USD Services PMI (Apr)