ECB's Hawkish Move and Risk Appetite Propel Major Currencies, Leaving Dollar in the Dus

Hawkish ECB and soaring risk appetite sink dollar

Both the Federal Reserve and the ECB struck hawkish surprises last week. However, the latter hiked rates while the former did not, and markets chose to believe facts, rather than rhetoric.

 

The dollar sold-off sharply against every major currency in the world, with the expectation of the Japanese yen, hurt by the Bank of Japan's insistence on pretending it is still 2020. The British pound was the week's winner, soaring by more than 2% against the dollar and topping the week's charts. So far this year, Latin American currencies remain the stars, with the Colombian and Mexican pesos and the Brazilian real all up by double digits against the US dollar.

The UK will be in focus this week. As in the US last week, the Bank of England meeting on Thursday will be preceded by the release of the May inflation numbers. There is near unanimity that the MPC will hike rates by another 25bps on Thursday and signal that more hikes are likely on the way. Later in the week we get the flash PMIs of business activity worldwide. The week will be uncharacteristically quiet in the US, and the spotlight will be elsewhere, primarily on sterling.