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Dollar surges across the board

The single currency slid 0.83% to 1.1145 on Thursday, January 27. The dollar rally moved forward after the FOMC’s monetary policy meeting that wrapped up on Wednesday. Market particiants’ expectations of Fed tightening triggered an upward spike in UST yields.

Q4 US GDP climbed 6.9%, outpacing the median consensus that called for 5.5%. The Q4 print was the strongest in over a year, while durable goods orders declined for the first time in three months.

US futures and the DXY index rose as the GDP spike signaled that the economy is on the road to recovery in the wake of the Covid pandemic. That said, investors are understandably spooked by the uncertainty over the number of rate hikes this year and whether the Fed will raise rates by 50 bps or only 25 bps in March.

Today’s macro agenda (GMT+3)

  • 11:00 Switzerland: KOF leading indicators index (January)
  • 11:00 Spain: GDP (preliminary, Q4 2021)
  • 12:00 Germany: GDP (preliminary, Q4 2021)
  • 16:30 US: personal income and spending (December); PCE price index (December)
  • 18:00 US: University of Michigan consumer confidence data (January)

Current outlook

Major currencies have all been trading in the red on Friday morning. The dollar rally has decelerated, but could break out again with renewed impetus. The euro has been trending lower against the franc, the Canadian dollar and the British pound. For this reason, the key pair has been sluggishly recovering losses. On the older TFs, the nearest target zone is around 1.10. This level is quite close. If sellers opt out of profi-taking ahead of the weekend, the common currency could shed as many as 70 pips by today’s close.

The key factor driving risk appetite over the coming months will be the speed of the US Fed's rate hikes. And the speed of its increase will depend on incoming economic data (regarding inflation and the employment market).

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