Global stocks were catapulted to record highs on Thursday following the Federal Reserve’s "dovish hike" which rekindled investor’s appetite for riskier assets. Asian shares have traded mostly higher today as participants digest the Fed’s caution to future rate increases with the bullish domino uplifting European equities. With risk-on being the new name of the game in the short term, Wall Street may stroll into further gains moving forward.
Although the impressive stock market rally has displayed repeated signs of resilience against political risk and uncertainty this quarter, participants must remain diligent as some fragments of a bear market still linger. A situation in the future where investors start to lose faith over Trump’s pending fiscal stimulus plans could be the start of a steep market selloff.
Dollar punished by Doves
The Greenback was exposed to sharp losses on Wednesday after the Federal Reserve signaled a more moderate pace of monetary tightening in 2017 than most investors anticipated. Although US interest rates were increased as widely expected, the cautious tone Yellen struck at the press conference coupled with the static projections on the dot plot has extinguished expectations of four US interest rates increases this year. Regardless of the sharp Dollar selloff, the bullish bias remains intact in the longer term and with "the economy doing well" as Yellen stated buyers may reappear once a support has been established. Technical traders may observe how the Dollar Index reacts to the physiological 100.00 support which could provide protection for the bulls or simply assist the bears if prices are breached.
Sterling bounces back to life, but for how long?
Sterling bulls were back in action on Thursday with the GBPUSD lurching towards 1.2370 following the Bank of England’s unexpectedly hawkish signals on future interest rate increases. Although the monetary policy was left unchanged, the emergence of a lone BoE hawk coupled with concerns of rising inflation simply offered Sterling a solid boost. With speculations potentially heightening over other policy makers moving to the hawkish camp following the dissenting vote by Kristin Forbes, the Pound could be supported in the short term. Although the Central Bank has raised expectations for economic growth in the first quarter to hit 0.6%, this may be overshadowed by the Brexit developments in the medium to longer term.
While the current gains on the GBPUSD are impressive, it must be kept in mind that this has little to do with a change of sentiment towards Sterling but extreme Dollar weakness. Technical traders may pay very close attention to how prices react around the 1.2400 regions with weakness below opening a path back down towards 1.2200.
