©Reuters
Investing.com – The U.S. dollar soared in European trading on Friday after a surprise interest rate cut by the Swiss National Bank made the Federal Reserve appear more hawkish.
As of 4:00 a.m. ET (9 a.m. Japan time), the dollar index against a basket of six other currencies was trading 0.4% higher at 104.085, near a three-week high and trending higher for the second consecutive week. .
US economy is strong
The meeting was the biggest surprise in a week filled with central bank meetings citing lower interest rates and a stronger franc.
The Swiss franc, the best-performing G10 currency in 2023, fell more than 1% overnight and continued to fall on Friday, rising 0.4% to near parity at 0.9009 francs.
The move prompted traders to reassess the Fed's future actions after officials at this week's FOMC meeting reaffirmed the possibility of three rate cuts this year if economic data allows. ing.
The US central bank also significantly upgraded its 2024 growth outlook, with Thursday's data suggesting the US economy remains strong after an unexpected drop in the number of Americans applying for unemployment benefits last week. , while sales of previously owned stocks grew at record highs. February of the year.
This suggests that the Fed is in no hurry to cut rates going forward.
Still, ING analysts said in a note that “the dollar's appreciation appears to have gone too far.”
“The Fed sent a pretty clear message earlier this week: As long as inflation shows downward momentum, some resilience in activity data will not be an impediment to rate cuts.”
Expectations for BOE interest rate cuts are not “unreasonable''
In Europe, interest rates fell 0.5% to 1.2588 on Thursday, the lowest in a month, after two members of the MPC withdrew their call for a rate hike, citing easing inflation.
Bank of England Governor Andrew Bailey says expectations for rate cuts this year are not “unreasonable”, the Financial Times reported on Friday.
“The market sees this primarily as a recognition that a rate cut is not far off,” ING added, adding that it is now more confident that the central bank will start easing in June (20bp already priced in) and that it will Speculation has begun regarding mitigation measures (7bp). priced).
It traded 0.4% lower at 1.0814 as eurozone activity data continued to paint a bleak picture for the region's manufacturing outlook.
European Central Bank President Joachim Nagel said on Friday that the European Central Bank could be in a position to cut interest rates before the summer recess, possibly in June, as inflation is returning to the central bank's 2% target. Stated.
The comments add Nagel to a long list of policymakers believed to support a rate cut in June, making the ECB the second major central bank after the Swiss central bank to begin unwinding a record series of rate hikes. It suggests that.
Yen approaches four-month low
The yen continued its steep decline overnight, trading slightly lower at 151.59, near a four-month high.
It rose 0.2% to 7.2297, surpassing the 7.2 level for the first time since November 2023, following reports that the People's Bank of China is selling dollars and buying renminbi from the open market to support the Chinese currency.
Risk sentiment took a hit, dropping 0.8% to 0.6515.
