The US Dollar (USD) strengthened yesterday as rising US Treasury yields and expectations of a hawkish outcome from this evening’s Federal Reserve meeting boosted USD.
The American currency also enjoyed some safe-haven flows, as concerns about a possible escalation of the conflict in Ukraine rattled markets. Russian-backed separatists announced plans to hold referenda on joining Russia in four occupied Ukrainian territories.
This evening, the Fed is expected to raise interest rates by at least 75 bps. A larger hike could see the US Dollar surge to new highs. Until then, risk appetite may keep USD afloat.
The Pound (GBP) traded without a clear direction yesterday as a lack of UK economic data left the currency susceptible to shifts in sentiment.
Worries about the situation in Ukraine put some pressure on Sterling in the afternoon.
This morning, UK public sector borrowing printed higher than expected in August as debt interest repayments continue to become costlier. This could cause concern ahead of Friday’s mini-budget, where the government is expected to announce around £150bn of more borrowing.
The Euro (EUR) weakened against most of its peers yesterday as worries about the Russia-Ukraine war hurt the single currency.
Analysts correctly predicted that the referenda in Russian-held parts of Ukraine were simply a pretext to announce a military mobilisation. Fears that the conflict will escalate dented EUR.
Today, the Euro has slumped. Vladimir Putin has announced a partial military mobilisation, accompanied with some aggressive rhetoric and sabre-rattling. A longer, more destructive war will further damage the Eurozone economy.
The Canadian Dollar (CAD) fell yesterday as a sharp drop in oil prices dragged the commodity-linked currency lower.
This morning, the ‘Loonie’ reversed those losses as crude prices spiked. Movements in the oil market will likely continue to drive CAD today.
The Australian Dollar (AUD) declined in overnight trade as a souring market mood weighed on the risk-sensitive ‘Aussie’.
Likewise, the New Zealand Dollar (NZD) edged lower overnight amid a risk-off mood among investors.
Contact Samuel Birnie
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