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Forex Today: Dollar strengthens further, Kiwi tumbles

Market participants continue to digest the latest economic data, central bank decisions, and the FOMC minutes while awaiting news regarding the debt-ceiling drama. No major reports are due in the Asian session. Later in the day, Germany and the US will release new estimates for Q1 GDP. The weekly Jobless Claims report is also due in the US.

Here is what you need to know on Thursday, May 25:

The US Dollar Index rose for the third consecutive day and recorded its highest daily close since March 17, just below 104.00. The ongoing risk aversion sentiment continues to support the US Dollar. Wall Street indexes experienced another drop, with the Dow Jones falling 0.77% and reaching its lowest since late March. The unresolved issue of the debt ceiling remains a concern for investors as negotiations continue in Washington without reaching a deal.

Minutes from the latest FOMC meeting revealed a division among members regarding the future path of monetary policy tightening. Some members highlighted the need for further rate hikes, while others argued that additional tightening may not be necessary after this meeting. The US Dollar maintained its gains following the release of the minutes. On Thursday, economic reports from the US will include the weekly Jobless Claims, a new Q1 GDP estimate, the Chicago Fed National Activity Index, and Pending Home Sales.

EUR/USD continued to drop, hitting two-month lows below 1.0750. The pair is trading below the 20-week Simple Moving Average for the first time since November. On Thursday, Germany will report a new estimate of Q1 GDP.

In the UK, data showed that inflation dropped to 8.7% in April, the lowest level since March 2022, but still higher than the market consensus of 8.2%. GBP/USD staged a short-lived recovery but then continued its downward movement, falling to one-month lows near 1.2360.

Analysts at TD Securities wrote: 

Today's inflation data was a shocker. Core inflation is proving far more persistent than expected, and the UK is now a clear outlier vs other major economies. As a result, we now expect two more rate hikes from the BoE, taking its terminal rate to 5.00% in August. Should inflation and employment data not cool, risks of further hikes beyond August remain on the table.


USD/JPY
broke above 139.00 and jumped to 139.40, reaching its highest level in almost six months. This surge was driven by higher US bond yields, which strengthened the US Dollar against the Japanese Yen. On Friday, Japan will release inflation data.

The Reserve Bank of New Zealand (RBNZ) raised interest rates by 25 basis points to 5.5%, signalling an end to tightening monetary policy. As a result, the Kiwi tumbled, extending its losses throughout the day. The currency was the worst performer, with NZD/USD losing over a hundred pips and falling to 0.6100. Meanwhile, AUD/NZD surged above 1.0700.

AUD/USD also succumbed to the strength of the US Dollar and was further dragged down by the Kiwi's decline, technical factors, and a slide in commodities. Breaking through the 0.6570/80 support area, the pair plummeted to 0.6528.

USD/CAD finally broke out of its consolidation phase and experienced a bullish move towards 1.3600 after several days. The upside was limited by another increase in crude oil prices, with the WTI barrel rising 1.40% to $74.00.

The Mexican Peso outperformed on Wednesday, with USD/MXN falling almost 1% and pulling back towards 17.75, erasing most of its recent losses.

The South African Reserve Bank (SARB) will have its meeting on Thursday, and analysts anticipate a 50 basis point interest rate hike to 8.25% due to the recent slide in the value of the South African Rand. Meanwhile, the Central Bank of Turkey is expected to keep its interest rates unchanged at 8.50% ahead of the presidential runoff elections on Sunday. The Bank of Korea and Bank Indonesia are expected to keep their interest rates at 3.50% and 5.75%, respectively.

Gold reversed its gains, dropping from $1,985 back below $1,960 and remaining under pressure. Silver also experienced a decline and was testing the $23.00 level. Cryptocurrencies witnessed a sharp drop, with Bitcoin falling over 3% and settling around $26,300.


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Author

Matías Salord

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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