Fed Talk Strengthens Dollar as ECB, BoE Face Different Paths


zForex.com Representative
Recent comments from Federal Reserve officials have bolstered the US Dollar (USD). The US Department of Labor reported that new claims for unemployment benefits for the week ending April 13 rose by 212K, consistent with the previous week's revised count (up from 211K) and below the market consensus of 215K. This suggests that the labor market remains resilient, leading investors to anticipate a possible delay in Federal Reserve interest rate cuts until September.
Fed Chair Jerome Powell emphasized on Tuesday the need for a restrictive monetary policy to continue longer than anticipated, as inflation rates in the first quarter exceeded expectations. Atlanta Fed President Raphael Bostic commented on Thursday that he expects inflation to slowly return to the 2% target, and he is comfortable waiting, predicting potential rate cuts by the end of the year. Meanwhile, New York Fed President John Williams sees no urgent need to cut rates, asserting that the current monetary policy is effective. This narrative of maintaining higher rates for a longer period has continued to support the strength of the US Dollar.
In contrast, the European Central Bank (ECB) already hinted at possible interest rate cuts in June. ECB Vice-President Luis de Guindos expressed his willingness to ease monetary policy if the data meets expectations, and ECB policymaker François Villeroy de Galhau spoke out in favor of a rate cut in June to forestall a backlog in inflation control. ECB policymaker Joachim Nagel also conceded that an interest rate cut in June is becoming increasingly likely despite the persistently high inflation figures. This speculation has put downward pressure on the Euro (EUR).
The Pound Sterling (GBP) is currently finding temporary support at 1.2400, although the short-term outlook is clouded by risk-averse market sentiment due to escalating tensions in the Middle East. UK retail sales data published by the Office for National Statistics for March showed no change from the previous month, falling short of the 0.3% increase expected by economists. This stagnation suggests that the Bank of England's high interest rates are significantly impacting consumer spending.
In Asia, the Japanese Yen (JPY) has strengthened owing to a rise in risk aversion following reports of Israeli missile strikes on Iran, as covered by ABC News. The Yen also saw support from Japan's latest inflation data. Additionally, Bank of Japan Governor Kazuo Ueda's hawkish remarks about potentially raising interest rates if the Yen's decline significantly fuels inflation added to the JPY's strength, affecting the USD/JPY currency pair.