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US dollar rises ahead of Fed decision

Wednesday, September 20, 2023

Today’s headlines

What’s happening: The US dollar moved higher on Tuesday, ahead of several interest rate decisions this week.

What happened: The US dollar index gained for the ninth week in a row last week, its biggest winning streak in almost a decade.

The greenback extended gains on Tuesday, hovering close to its six-month high recorded last week.

Why it matters: Despite the Federal Reserve taking a breather from rate hikes, the US dollar has been on an upward trajectory, supported by resilient growth in the economy.

Investors are awaiting interest rate decisions from several major central banks this week. The US Federal Reserve is all set to announce its rate decision today and is widely projected to keep rates unchanged.

The Bank of England will announce its interest rate decision on Thursday, with markets expecting the central bank to raise rates for the last time in its ongoing tightening cycle. The Bank of Japan is also scheduled to announce its decision on Friday.

The US dollar came under pressure versus the euro earlier during the session on Tuesday, while the Japanese yen traded close to a 10-month low against the greenback. However, the US dollar soon pared losses and turned higher. The EUR/USD forex pair settled lower by around 0.1% on Tuesday, after rising to as high as 1.0718 in early trading.

The AUD/USD forex pair climbed, after minutes from the latest Reserve Bank of Australia meeting signalled further rate hikes ahead.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained over 0.1% to reach 105.20, compared to the six-month high of 105.43 recorded on Thursday.

What to watch: Traders will watch the interest rate decision, outlook on inflation and economic projections from the US Federal Reserve today. Comments from Fed Chairman Jerome Powell following the meeting will also remain in focus.

The markets today

UK stocks will be in focus today ahead of the much-awaited inflation data

Context: The FTSE 100 closed slightly higher on Tuesday, as investors digested recent earnings reports from companies.

Details: The Bank of England is scheduled to announce its interest rate decision on Thursday, with investors widely expecting policymakers to increase rates by 25 basis points to 5.5% before ending the current rate hike cycle.

Shares of Hargreaves Lansdown gained around 5% on Tuesday, after the investment platform reported better-than-expected annual profits, sending the investment banking and brokerage services price return index higher by around 1.2% during the session. Energy stocks also gained around 0.9% on Tuesday, amid higher oil prices.

Shares of Kingfisher declined by more than 12% after the company lowered its annual profit outlook. Ocado Retail maintained its forecast for the full year after reporting a 7.2% increase in revenues for the third quarter.

The OECD (Organisation for Economic Cooperation and Development) downgraded the UK’s growth outlook for 2024 to 0.8%, from its previous projection of 1.0%.

London’s FTSE 100 gained 0.09% to close at 7,660.20 on Tuesday, while the domestically focused FTSE 250 lost 0.12% to settle at 18,426.70.

What to watch: Investors await the release of economic data on inflation rate today. Consumer price inflation in the UK, which eased to 6.8% in July, is expected to accelerate back to 7.1% in August. Analysts expect producer input prices to fall by 2% year-over-year in August, following a 3.3% decline in the prior month. The Retail Price Index, which increased by 9% year-over-year in July, is expected to rise by 9.2% in August.

Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.31%, 0.22% and 0.22%, respectively.

The news shaping the markets

US President Joe Biden told the UNGA that the world must stand up to Russia’s aggression and remain united in defending Ukraine. The news sent the safe-haven US dollar index slightly lower this morning.


Australia’s Westpac-Melbourne Institute Leading Economic Index came in almost flat versus the previous month in August, which exerted pressure on the AUD/USD forex pair.


The People’s Bank of China held lending rates at the latest fixing, sending the CNY/USD pair slightly lower in forex trading this morning.


Japan’s trade deficit narrowed to ¥ 930.5 billion in August, from ¥2,790.4 billion in the year-ago month, lending support to the JPY/USD forex pair.


New Zealand’s current account deficit narrowed to NZ$4.208 billion in the June quarter, from NZ$6.3 billion in the year-ago period, sending the NZD/USD pair higher in forex trading this morning.

What else to watch today

Germany’s producer price inflation, South Africa’s inflation rate and retail sales, Eurozone’s construction output, US MBA mortgage applications, crude oil inventories, gasoline stocks change and distillate stocks,  India’s money supply M3, Turkey’s government debt, Russia’s producer price inflation and consumer confidence, as well as Argentina’s leading economic index and unemployment rate.


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