EUR/USD, GBP/USD, AUD/USD, USD/JPY – Powell’s Hawkish Comments Lift U.S. Dollar

Key Insights

• FedWatch Tool indicates 51.3% probability of 50 bps rate hike in March.
• U.S. Dollar Index settles above 105 level as traders bet on a more hawkish Fed. 
• RBA raises interest rate by 25 bps but AUD/USD remains under strong pressure.

U.S. Dollar

U.S. Dollar Index settled above the 105 level after hawkish comments from Fed Chair Jerome Powell.

Powell said that higher rates were needed to fight inflation. The FedWatch Tool indicates that there is a 51.3% probability of a 50 bps rate hike at the next Fed meeting in March. The peak rate is expected to be in the 550 – 575 bps range.

Powell’s comments provided material support to the American currency, and the U.S. dollar moved towards multi-week highs.

EUR/USD

EUR/USD declined below the 1.0600 level as traders focused on Powell’s comments. While the ECB is expected to raise rates to fight inflation, the change in Fed policy outlook is bearish for EUR/USD.

Today, traders also had a chance to take a look at the Factory Orders report from Germany. The report indicated that Germany’s Factory Orders increased by 1% month-over-month in January, compared to analyst consensus of -0.9%. While the report exceeded expectations, traders will stay focused on the recent changes in Fed policy outlook.

GBP/USD

GBP/USD tested new lows after Powell’s comments. The hawkish Fed is bearish for GBP/USD as the BoE will not be able to raise rates at a fast pace due to the weakness of the British economy.

AUD/USD

AUD/USD tested multi-month lows as traders reacted to the RBA Interest Rate Decision and Powell’s comments. RBA raised the interest rate from 3.35% to 3.6%, in line with the analyst consensus. As the Fed is expected to raise the rate by 50 bps at the next meeting, the Australian dollar found itself under strong pressure.

Other commodity-related currencies have also moved lower amid a broad pullback in commodity markets. NZD/USD declined towards the 0.6125 level, while USD/CAD settled near 1.3730.

USD/JPY

USD/JPY moved towards the 137 level as traders bet on a more hawkish Fed. The resistance near the 137 level has been tested several times and proved its strength. A move above the 137 level will push USD/JPY towards the next significant resistance at 138.

For a look at all of today’s economic events, check out our economic calendar.