Dollar rally halted by dovish Fed and soft employment data


The dollar depreciated against most currencies last week on the back of the Fed’s dovish tone and a weak US jobs report.

The Japanese yen rose by more than 2% after massive intervention from Japanese authorities after the currency dipped to multi decade lows.

Improved economic performance supports the euro and sterling.

AUD outperforms as high inflation hints at more RBA rate hikes.


The Federal Reserve last week made it clear to markets that the bar for thinking about new rate increases in the US is quite high, and recent data are nowhere near enough to reach it.

The dollar fell in the aftermath of Chair Powell’s press conference, and the sell-off picked up some steam after a weaker than expected April payrolls report out of the US. In the end, the dollar sell-off was fairly moderate against most major currencies with the glaring exception of the Yen, up over 2% after massive intervention from Japanese authorities after the currency dipped to multi decade lows.

This week is light in data, and shortened by the May first holiday in London, the main currency trading centre in the world. Nevertheless, interest will centre on the UK, where we will get first quarter GDP data just prior to the Bank of England May meeting on Thursday. Beyond that, focus will be on a batch of Federal Reserve and ECB speakers throughout the week. Currency markets are likely to maintain a holding pattern until we receive the next batch of the all important inflation data out of the various economic areas. For now, it seems like it will be increasingly difficult for the dollar to keep rising from already very expensive levels absent serious surprises in inflation data.



The two big events out of the US last week, the FOMC meeting and the April payrolls report, confirmed that it will be very difficult to see additional hikes out of the Federal Reserve. Chair Powell struck a slightly dovish note at the press conference after the meeting, suggesting that the Fed is not yet excessively worried about the rebound in inflation, and that the threshold for hikes is high and nowhere near being met yet. The payroll report was softer than expected, and specifically showed that wage growth is decelerating, as average earnings grew at the slowest pace since June 2021, in spite of the still tight labour market.

This week is light in news, and markets’ attention will be focused on a battery of speeches by Federal Reserve officials.



Both the April flash inflation number and the first-quarter GDP report out of the Eurozone hinted that the gap between the Eurozone and the US economies may narrow from here. Inflation provided the first upward surprise in a while, as the core index came out somewhat higher than expected. The GDP report provided a more positive surprise, growing nearly 1% on the quarter in annualised terms, triple the expected rate, and confirming that the economy has moved on beyond last year’s technical recession.

No critical news is expected out of the Eurozone this week, but we would expect the common currency to continue drifting upwards on the back of the better economic tone.



Sterling has outperformed all other G10 currencies in 2024 save for the US dollar, on the back of high interest rates, expectations that they will be kept high for longer, and now a string of positive developments on growth and the economy.

The former two will be tested this week at the Bank of England meeting on Thursday, where we expect to see some clarification of the MPC’s expectations for the timing of the first cut. Right now, markets do not expect this to happen till late summer at the earliest. Any validation of this outlook from Bank of England officials would add fuel to the Pound’s rally.