The dollar index closed weaker in yesterday’s session after Fed chair Jerome Powell indicated it may take longer than initially anticipated before the Fed would start reducing its $9 trillion bond balance sheet. He also reiterated that hiking of interest rates is still in their radar given the inflationary concerns. However, rate hike decision will be deferred. The dollar index traded to a high of 96.07 before closing the session at 95.624.
Euro closed firmer against the dollar post Fed chair Jerome Powell’s congressional testimony as it proved less hawkish than anticipated. With the rate hiking cycle looking further away than expected, the divergence of monetary policy between the ECB and the Fed has narrowed especially in light of hawkish comments from ECB officials. The common currency advanced to a high of $1.1369 after reaching a low of $1.1318.
Pound sterling closed stronger against the dollar to climb above the $1.3600 handle post Jerome Powell’s renomination hearing, the lack of UK economic data left the cable at the mercy of the Fed chair. The UK OIS curve is pricing a 77% chance of a rate hike in Feb, with more hikes to come in the year. The pound traded a low of $1.3563 before closing at $1.3634.
The South African rand traded firmer during yesterday’s session, on the back of a softer dollar. We saw the local currency initially reaching a high of R15.6869$ during early trading, although it later shrugged off its early jitters to touch a low of R15.5016$ before ending the session firm at R15.5250$, as Jerome Powell’s testimony saw the dollar losing its edge.
The local currency remains vulnerable to global trends, including the inflation data print due from the US today and the effect it will have on the decisions made by the Fed, as well as the SARB’s outlook on interest rates.
We are thin on the local data front. On the international data cards, we have industrial production numbers due from the Eurozone as well as the highly anticipated CPI data from the US.
Expected ranges for the day:
- USDZAR: R15.3000/$ – R15.6000/$
- EURUSD: $ 1.1345 – $1.1445
- GBPUSD: $ 1.3610 – $1.3685