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Dollar steady against euro and yen, and strengthens against sterling

The Fed’s rate hike last night did little to boost the dollar in the short-term, but the overall outlook means that the greenback continues to hold its ground against other currencies.

EUR/USD hovers near $1.06

Despite raising rates by the largest single amount since 2000, yesterday’s Federal Reserve (Fed) meeting actually delivered a weaker US dollar. EUR/USD has been edging higher over the past week, but the Fed meeting provided the spark for further gains that might result in a short-term counter-trend bounce.

Of course, the broader picture remains firmly bearish, with the lower low from last week confirming the strength of the move, and the price remaining well below the declining 50-day simple moving average (SMA).

Further short-term gains above $1.06 would target $1.0777, and then on towards $1.09, where the price encountered resistance in April, along with the 50-day SMA (currently $1.09).

GBP/USD weakens before Bank of England meeting

While the GBP/USD recovered yesterday following the Fed meeting, it has come under pressure once again.

While the Fed has talked about the pace of rate hikes, and has moved to 50 basis points (bps) from 25 bps, caution at the Bank of England (BoE) has meant that the pound has come off worse against the US dollar, falling sharply in recent months. The downtrend is firmly intact, and the anaemic bounce of the past week does little to change that.

A recovery above $1.2635 would provide a more short-term bullish view, opening the way to a possible bounce in the direction of $1.3 and the 50-day SMA. Alternately, should the BoE be less hawkish than expected, the pair may fall back towards last week’s low at $1.2411.

USD/JPY holds above ¥128.00

The Fed’s decision last night has provided some support for the USD/JPY, as the gap between the central banks and their policies widens.

Gains have been hard to come by, as barring a much more hawkish Fed, further upside is difficult to achieve in the absence of fresh news.

​Arguably the risk-reward ratio continues to be unfavourable for buyers, given the shallowness of the retracement. A bigger drop towards ¥126.00 or lower might provide a better risk-reward outlook.


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