The US Dollar (USD) extended its rally to a nearly two-month high, exerting significant downward pressure on both the Canadian Dollar (CAD) and the British Pound (GBP) during Asian trading on Friday [1][2]. The USD/CAD pair advanced for the fifth consecutive day, trading around 1.4140, as the CAD weakened in response to falling crude oil prices and a strengthening USD [1]. The decline in oil prices followed reports of potential US-Iran negotiations, mediated by Qatari officials, to reopen the Strait of Hormuz and lift the US blockade on Iranian ports. However, both the US and Iran maintained firm positions, with Iran demanding the lifting of the blockade and the US showing little urgency to concede [1].
Simultaneously, the GBP/USD pair edged higher above 1.3200 after touching its lowest level since June 29, but the broader trend remained bearish due to the USD's strength and the Bank of England's (BoE) cautious policy stance amid stagflation concerns [2]. The USD's bullish momentum was underpinned by hawkish signals from Federal Reserve officials, particularly Fed’s Paulson, who emphasized the risk of further rate hikes due to persistent inflation pressures and a resilient US economy [1][2]. The CME FedWatch Tool indicated that the probability of an October rate hike had surged to nearly 67.5%, up from 55.4% a week ago and just 11% a month prior [1][2].
Technical analysis showed that USD/CAD was trading above both the nine-period and 50-period Exponential Moving Averages, with a 14-day Relative Strength Index (RSI) at 72.64, indicating overbought conditions and a strong bullish bias [1]. For GBP/USD, the pair remained below the 200-day Simple Moving Average at 1.3452, suggesting that rallies are likely to be capped and sellers remain in control. A break below 1.3300 could expose the year-to-date low of 1.3265, potentially triggering further downside [2].
Market data for the week showed the USD appreciating 1.44% against the CAD and 1.17% against the GBP, making it the strongest performer against the Australian Dollar as well [2]. Looking ahead, traders are awaiting comments from BoE Governor Andrew Bailey and US macroeconomic data, including Durable Goods Orders and the revised University of Michigan Consumer Sentiment Index, for further direction. Additional remarks from influential FOMC members are also expected to impact USD trading [2].
CONCLUSION
The US Dollar's robust rally, fueled by hawkish Federal Reserve signals and rising rate hike expectations, has weighed heavily on both the Canadian Dollar and British Pound. With technical indicators and market sentiment favoring further USD strength, traders are closely monitoring upcoming central bank commentary and economic data for additional cues. The prevailing environment suggests continued pressure on commodity-linked and risk-sensitive currencies.