© Reuters. FILE PHOTO: U.S. greenback banknotes are displayed on this illustration taken, February 14, 2022. REUTERS/Dado Ruvic/Illustration
By Saikat Chatterjee
LONDON (Reuters) – The euro pulled again from a one-week excessive towards the U.S. greenback on Thursday after German industrial orders fell greater than anticipated in March, signalling Europe was going through rising headwinds from the warfare in Ukraine.
The greenback had weakened after the Fed raised rates of interest by 50 foundation factors. Hedge funds trimmed prolonged lengthy positions after Fed Chair Jerome Powell informed reporters later that policymakers weren’t actively contemplating 75-basis-point strikes sooner or later.
However the U.S. foreign money noticed some contemporary demand in London buying and selling after Germany reported industrial orders in March suffered their largest month-to-month drop since final October.
Whereas strain grows on international policymakers to rein in surging inflation, the German knowledge raises questions how shortly can the European Central Financial institution afford to tighten coverage with out choking financial progress. Cash markets anticipate an ECB rate of interest hike as early as July.
“The German knowledge was dreadful and the greenback is regaining some misplaced floor,” mentioned a dealer at a European financial institution.
The slid 0.9% from close to a two-decade excessive to 102.450 within the wake of the Fed choice, however was up 0.4% in early London buying and selling at 102.82.
The only foreign money which briefly climbed to a one-week excessive of $1.0639 on Thursday ceded positive aspects and fell 0.2% to $1.06020 It matched an early 2017 low of $1.0470 final month.
Expectations of a hawkish Fed have weighed closely on markets this 12 months and powered the greenback increased. It’s up greater than 7% up to now this 12 months towards a basket of different main currencies, on monitor for its largest annual positive aspects since 2015.
However with its index now round 103, buyers are questioning whether or not the greenback has legs to rise greater than 15% to its 2002 highs or fall again by an identical margin to the lows of 2017 and 2020.
“The one factor that may change the outlook of a broadly stronger greenback is a weakening of the U.S. economic system,” mentioned Kenneth Broux, a foreign money strategist at Societe Generale (OTC:) in London.
Sterling fell greater than 0.5% to $1.2561 earlier than a Financial institution of England (BoE) assembly the place merchants have totally priced a 25 basis-point price hike.
(Graphic: US greenback and treasury, https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnymkgvq/USpercent20dollarpercent20andpercent20treasury.JPG)