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On Tuesday, the US currency is declining. However, the Australian dollar is rapidly recovering after its recent sell-off
At the time of writing the article, the dollar has dropped 0.27% to 96.26 against a basket of six major currencies. Besides, at the end of last week the greenback reached an all-time high of 97.44 in the last year and a half.
The expectations of traders for the Fed's sharp increase in the interest rates triggered the dollar's exponential growth last week. The market is confident that the US regulator will announce a 50-basis-point rate hike during its meeting in March.
Investors' expectations are clear: the central bank has to curb rising inflation, which has already reached its record highs. However, the Fed officials' statements are completely opposite. CEO of the Federal Reserve Bank of Kansas City Esther George said that the central bank might implement a less tight monetary policy, i.e. raising the interest rate would be done gradually. CEO of the Federal Reserve Bank of San Francisco Mary Daley also stated that a rapid tightening of monetary policy was unlikely.
On Tuesday, the AUD/USD pair recovered its earlier loss of 5%. At the time of writing the review, the Australian dollar rose by 0.50% to 0.7101. According to the Reserve Bank of Australia's February monetary policy meeting, this morning the central bank kept its monetary rate at a record low of 0.1% and also ended its AUD 275 billion bond-buying program. The Australian regulator said it would be extremely patient with the interest rate hike, even as inflationary pressure increased.
On Tuesday, the euro was likely to ignore the depressing macro statistics from Germany and rose by 0.28% to 1.1265 against the dollar. Therefore, retail sales in Germany in December were much lower than expected: the index of goods and services sales in the biggest EU economy decreased by 5.5% month-on-month in real terms. Analysts predicted the decline would be at the level of 1.4%.
The Japanese yen dropped 0.1% against the dollar to 114.94.
On the contrary, the British pound gained 0.2% against the dollar: GBP/USD was trading at 1.3484. The pound was supported by the news that housing prices in the UK rose by 0.8% in January. This reading was the strongest start of the year in the UK for the last 17 years.
As for UK monetary policy, the Bank of England will hold a meeting to discuss this issue on Thursday. Taking into account high home prices, the regulator may decide to raise interest rates a second time. Besides, the market has already considered this strategy, therefore further pound's growth is unlikely.
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