The US dollar sharply rose in European trading on Friday, following the surprise interest rate cut by the Swiss National Bank. The Swiss National Bank delivered the biggest surprise of a week filled with central bank meetings, cutting interest rates and citing the strength of the franc as a reason. The Swiss franc, the best-performing currency of the Group of Ten in 2023, declined by over 1%.
This move prompted traders to reassess potential future actions by the Federal Reserve, following this week’s Federal Open Market Committee meeting, where officials reiterated the possibility of three interest rate cuts this year if economic data permits.
Additionally, the US central bank significantly upgraded its growth expectations for 2024, with Thursday’s data indicating continued strength in the US economy, as initial jobless claims unexpectedly fell last week, while existing home sales saw a larger-than-expected increase in February. This suggests that the Federal Reserve may not need to rush into interest rate cuts in the future.
In Europe, the British pound against the US dollar decreased, hitting its lowest level in a month after the Bank of England left interest rates unchanged on Thursday, although two members of the Monetary Policy Committee dropped their calls for raising interest rates in the face of easing inflation.
The Financial Times mentioned on Friday that expectations for interest rate cuts this year were not “unreasonable,” according to Bank of England Governor Andrew Bailey. ECB President Joachim Nagel also stated on Friday that the European Central Bank may be in a position to lower interest rates before the summer holidays, possibly in June, as inflation is on track to return to the bank’s 2% target.
These comments by Nagel add to a long list of policymakers seemingly supporting a cut in June, indicating that the European Central Bank will be the second major central bank after its Swiss counterpart to begin unwinding a record series of interest rate hikes.
Furthermore, the yen approached its lowest levels in four months, experiencing sharp losses overnight, while the dollar/yuan pair rose, surpassing the 7.2 level for the first time since November 2023, following reports that the People’s Bank of China was selling dollars and buying yuan from the open market to support the Chinese currency. Additionally, the Australian dollar/US dollar declined by 0.8% to 0.6515, reflecting risk sentiment.
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Shady Fouad is a technical analyst at LDN Company
Shady's strategic vision in the currency markets is reinforced by more than fifteen years of trading experience, which enables him to blend economic and technical analyzes with high efficiency, and find the best investment ideas for traders.
