US dollar rises as investors anticipate strong corporate earnings

US federal reserve members continue to make hawkish statements on monetary policy, strengthening dollar

By Laila Eid | @Laila Eid | 20 April 2023

Midday Market update
  • The dollar is once again on the rise due to the hawkish statements from the Federal Reserve members

  • The strength of the US dollar is causing oil prices to decline

  • The euro remains stable as investors anticipate key sector data

US dollar continues to rise against major currencies

The US dollar is continuing its ascent since the start of the week against most major currencies. Today, the index began trading with a slight increase and is currently near levels of 101.91 points. These increases are due to growing market expectations of continued monetary tightening by the US Federal Reserve during upcoming bank meetings. This sentiment was reinforced by hawkish statements from Federal Reserve members who are calling for continued monetary policy tightening.

On Monday, Federal Reserve member Thomas Barkin stated that the bank needs to see more evidence of declining inflation rates before making any easing decisions or even stopping monetary policy tightening. Meanwhile, James Bullard, another US Federal Reserve member, stated that the Federal Reserve should raise interest rates due to the lack of significant progress on inflation. Bullard's statement strengthened the dollar against other currencies.

Investors are now focusing on the release of corporate earnings for the first quarter of the year.

Oil prices drop sharply amid US interest rate hike expectations

Despite strong growth data in China, which boosted morale about increased demand for oil, oil prices fell sharply during yesterday's trading, dropping more than 2%. The decline was due to the strength of the US dollar following hawkish statements by Federal Reserve members, which increased the likelihood of US interest rate hikes. This put pressure on commodities and metals against the dollar, causing oil prices to drop.

West Texas Intermediate crude oil started trading today with a noticeable decline, currently trading near levels of $78 per barrel. Similarly, Brent crude oil saw a decline near $81 per barrel. Investors are now keeping a close eye on the impact of US interest rate hikes on the oil market.

Euro stable against US dollar ahead of key manufacturing and service sector data

The euro remained stable against the US dollar during today's trading, currently trading near levels of $1.0963. Investors are anticipating the release of important economic data, particularly service and manufacturing purchasing managers' index data in the eurozone and other countries, which is expected to impact the euro's performance.

Philip Lane, a member of the European Central Bank, recently stated that core inflation is expected to remain stable in the near term, suggesting that the ECB may raise interest rates at its next meeting. These statements followed Eurostat's release of data showing that the final reading of the annual consumer price index was in line with the preliminary reading at 6.9%.

Christine Lagarde, President of the European Central Bank, had earlier stated that inflation in the euro area is expected to continue to decline, along with monetary policy tightening, which could weaken demand.

Markets are now eagerly awaiting the release of service and manufacturing purchasing managers' index data in the eurozone and other countries by the end of this week, which could impact the euro's performance in the near term.