The global currency markets were volatile and painfully unpredictable during Wednesday’s trading session, with power pairs causing havoc as central bank heavyweights defied market expectations by sounding rather hawkish. Euro bulls rampaged while Sterling received a new lease of life followingspeculation that Europe and Britain’s central banks areplanning to end an era of easy money. While the foreign exchange markets remained chaotic, the prospect of central banks scaling back monetary policiessupported risk sentiment. Asian shares marched higher during Thursday’s trading session following Wall Street’s impressive rebound as participants rediscovered their confidence over the global economy.
Sterling/Dollar clips 1.3000
Sterling staged a market-shaking rebound on Wednesday, with the upside invading Thursday’s trading session after Bank of England Governor Mark Carney dished out a hawkish surprise. Bullish investors were swift in gobbling up Carney’s hawkish remarks that ‘some removal of stimulus is likely to become necessary’ to send the GBPUSD towards 1.3000. While Sterling is likely to edge higher in the short term as investors overlook Brexit-related uncertainty and daydream over the possibility of higher rates, I still believe the upside remains limited.
It should be kept in mind that it was only last week that Carney stated that ‘now was not yet the time’ to raise interest rates. While raising interest rates may put a lid on inflation, it has the ability to negatively impact the fragile UK economy while also denting business confidence and pressuring consumers. Will the Bank of England raise interest rates while the UK economy is battling ongoing Brexit woes? Time will tell
EURUSD hits yearly high
I find it quite interesting how at the start of 2017 it was all about the EURUSD parity dream as political uncertainty in Europe and a Trump-fueled Dollar rally left the currency vulnerable to heavy losses. Six months later, the absence of political risk in Europe, a Dollar that lacks attitude and QE tapering speculations have sent the EURUSD to a yearly high at 1.1435. Although ECB sources attempted to quell the heated taper expectations on Wednesday, price action currently suggests that investors remain optimistic over the ECB scaling back monetary policy in the future. From a technical standpoint, the EURUSD is heavily bullish on the daily charts. The breakout above 1.1400 could encourage a further incline higher towards 1.1500.
Dollar sulks in the background
The Dollar tumbled to a new year-low on Thursday after a delayed healthcare bill vote heavily weighed on the prospects for tax cuts and infrastructure spending. With the IMF’s growth downgrade for the US economy shattering any surviving remnants of the Trump rally, the Dollar remains exposed to further downside losses. Although Fed policymakers remain optimistic over the health of the US economy the IMF and investors think otherwise and such can be reflected in the bearish price action of the Dollar Index. Who would have thought that after eight months the Dollar would relinquish its Trump rally gains and then some?
Participants may direct some of their attention towards the pending Final US GDP for Q1which could make or break the Dollar further this afternoon.From a technical standpoint, the Greenback is heavily pressured on the daily charts and the breakdown below 96.00 should encourage a decline towards 94.00.
