Daily Market Review – US Session – Dollar gains after hawkish Plosser speech

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The US Dollar made gains across the board today after positive news coming out today. Firstly, data showing GDP rose better than expected at 3.1% were encouraging and gave optimism to investors that the US economy is on the right course for growth. Secondly, the greenback was buoyed by hawkish speech given my several Fed officials namely Philly Fed Chairman Plosser, who indicated that that the Fed will likely tighten or even reverse monetary policy. This translates to the Fed not likely to extend its bond-buying stimulus program beyond a planned $600 billion. As the focus shifts to the US interest rate outlook, the ERUUSD pair plunged over 106 pips from 1.4159 down to a US session low of 1.4054.

The Pound continued its downtrend since it reached a new 14 month high on Tuesday. Sterling was weighted down after weak UK Retail sales data were released on Thursday, coupled with a dovish speech by MPC member George Osborne on Wednesday, hinting that a possibility of a rate hike will not happen in the near future. The Bank of England will not risk pushing up the interest rate in a fragile economy that is undergoing rising inflation. GBPUSD dipped over 96 pips in the US trading session to touch a low of 1.6006 erasing all gains made this month.

The Canadian Dollar suffered a major blow today after the Conservative government was given a no confidence vote, prompting new elections in May. Prime Minster Harper is hoping to win due to his good track record in helping the Canadian economy pull through the recession with a banking sector intact and recovering all job losses. However, his plan to cut corporate taxes does not bode well in a traditionally liberal country and a coalition government that was left leaning. The Loonie weakened against the greenback, with the USDCAD pair jumping over 73 pips from the open of New York to hit a session high of 0.9825.

The Swiss Franc is losing popularity as a safe haven currency due to risk appetite picking up in the markets. Declining commodity prices, namely gold and oil, contributed to weakening the currency. The USDCHF pair rose over 80 pips in the US session to reach a day high 0.9213 after opening at 0.9131. The surge in the pair was accelerated by the expectation that the US Fed will raise rates, thereby strengthening the US Dollar even more against the Swissy.

Gold prices were affected by the rise in the US Dollar, as the precious commodity has an inverse relationship with the US currency. If the Dollar strengthens, gold prices fall, keeping in mind that gold prices are quoted in US Dollar. After today’s speech by various Fed officials indicating a tightening of monetary policy, Spot gold prices lost as much as 158 pips from a US session high of USD1437.62 to as low as 1421.97.

 

EURUSD USDJPY GBPUSD USDCHF USDCAD GOLD
OPEN

(12:00 GMT)

1.4159 81.20 1.6102 0.9131 0.9752 1437.14
DAY’S HIGH 1.4159 81.47 1.6102 0.9213 0.9825 1437.62
DAY’S LOW 1.4067 80.86 1.6006 0.9126 0.9750 1421.97
CLOSE

(21:00 GMT)

1.4086 81.33 1.6039 0.9196 0.9801 1429.18