Dollar Dominance Continues: Impact on Euro and Pound Sterling.

USD: The U.S. Dollar remains the star of 2024’s currency market, solidifying its position as the top performer. This surge is fueled by diminishing expectations of a Federal Reserve interest rate hike, contrasted with robust U.S. inflation and a resilient job market. Meanwhile, the Eurozone and the UK face disinflation due to sluggish economic activity and easing job market conditions. The European Central Bank (ECB) hinted at an interest rate cut in June, while the Bank of England might follow suit in June or August. This divergence in economic fortunes strengthens the Dollar against the Euro and Pound Sterling. Probability of a June rate hike by the Federal Reserve plummeted following strong U.S. inflation data, signaling a significant shift in market sentiment. With only one rate cut priced in for 2024 in the U.S., compared to earlier expectations of seven cuts, the Dollar’s dominance is clear. However, whether this trend will persist hinges on upcoming labor market and inflation data, slated for May.

EUR: The euro faced downward pressure, hitting its lowest point of the year against the Dollar, driven by expectations of an ECB rate cut preceding the Federal Reserve’s move. This decline reflects the ECB’s readiness to counterbalance a cautious U.S. economic outlook, where recent inflation spikes prompted speculation of a forthcoming rate hike. Anticipated rate cuts by the ECB and the Bank of England further weighed on the euro and pound sterling, contributing to their significant weekly losses. The ECB’s indication of a June rate cut pushed the euro to a five-month low against the Dollar.

GBP: Similar to the Eurozone, the Pound Sterling faced downward pressure amidst expectations of monetary policy adjustments. The prospect of rate cuts by the Bank of England, coupled with a potential shift in market sentiment towards the Dollar, contributed to sterling’s decline. Like the Euro, the Pound reached a five-month low against the Dollar, reflecting market concerns over central bank policies and economic outlooks.