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Dollar's dominance returns

Once again the markets have renewed their preference for the dollar over both the pound and the euro.

Pound coin on dollar
Source: Bloomberg

EUR/USD could retest $1.0450

Last week saw confusion following the latest speech from Federal Reserve chair Janet Yellen as she left the door open for the Federal Open Market Committee to either continue on its current course or start to raise interest rates. Currency markets continue to factor in two interest rate rises in the second half of the year, both of 25 basis points. The first of these is still viewed as being likely in June/July with the second expected to arrive around September. Currency traders’ conviction on this is not as solid as it had previously been.

The perennial problem hanging over the eurozone is Greece. The longevity of this problem looks to be leading towards an increased willingness to entertain the idea that country will leave the eurozone.

The 50-day moving average has again worked as a cap on any upside in EUR/USD and a retest of the $1.0450 lows from earlier in the month looks on the cards.

EUR/USD chart

GBP/USD could see new selling opportunity

On numerous occasions over the month the $1.500 level was threatened with being broken, but each time it failed to close above this previous support level. Once again the focus has shifted onto the FOMC and what its timeline for interest rate rises might be. Clarity on this is sketchy at best, however markets still anticipate the US moving well ahead of the UK. This month’s comments from Bank of England governor Mark Carney have arguably pushed expectations for UK rate rising well into 2016.

Unlike the euro, sterling does not have the same monthly pressures of devaluation. However, the lingering fears that the eurozone’s struggles will sooner or later translate into problems for the UK is preventing the currency from gaining any real traction in the currency markets. Any decent bounce in GBP/USD should (unless breaking above $1.500) be seen as a fresh opportunity to sell. 

GBP/USD chart

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