Global Themes

The U.S. dollar stabilized Thursday after logging one of its worst days of the year when it slid at least a percent against its big rivals. The dollar plunged after the Federal Reserve raised interest rates for the first time this year but stopped short of raising the curtain on a faster pace of increases in the future. After the Fed went on a hawkish offensive recently to move the needle in favor of a March rate hike, many though the central bank might ramp up the pace of rate hikes over the rest of the year. The Fed instead remained steadfast, keeping forecasts unchanged for a total of three rate increases this year which left dollar bulls disappointed. The U.S. currency steadied around two-week lows against the loonie and one-month lows against the euro.


The euro was near one-month peaks against its U.S. rival after it successfully cleared three daunting risk events over the past week. A week ago, the ECB sounded less dovish in acknowledging the bloc’s better economic footing which caused the central bank president, Mario Draghi, to play down prospects of stronger stimulus. The Fed raised rates but didn’t let the hawks loose in not forecasting a faster pace of rate hikes this year. The Dutch election marked a significant win for the European establishment, suggesting a reduced threat of a far-right, anti-EU candidate winning France’s presidential vote in the spring.


Sterling surged to two-week highs after a Bank of England official voted for an inflation-suppressing interest rate hike. But Kristin Forbes was outnumbered as the rest of her eight colleagues voted to keep Britain’s base rate unchanged at 0.25 percent amid heightened uncertainty ahead of the country’s impending divorce from the EU. Nevertheless, the surprise dissenting vote suggested area lending rates had hit bottom and the next move would be higher. Officials upgraded their forecast for first quarter growth but said that wage growth had been ‘notably softer,’ posing an obstacle to higher rates.


The loonie climbed to highs for the month of March, benefitting from the greenback’s Fed-induced fall, which put upward pressure on the price of oil, allowing it to climb to within a buck of the psychologically important $50 level. Recent meetings of the U.S. and Canadian central banks suggest that any policy divergence might be less noticeable and supportive of USDCAD. Nevertheless, oil keeping below $50 will leave the loonie vulnerable and limit scope for rallies.


The U.S. dollar steadied after a Fed-inspired fall the day before. As the dust settles from the Fed’s third rate hike in a decade and its reaffirming of two more this year, the dollar’s dip is prone to give way to renewed buying at better levels given its still sunny outlook and continued political uncertainty in Europe. Sturdy U.S. fundamentals were on display in U.S. data Thursday showing fewer jobless claims and better than expected news on the Philly Fed index of Mid-Atlantic manufacturing, outcomes supportive of multiple U.S. rate hikes this year.

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