Dollar strength continues unwinding

The rebalance of expectations about when the Federal Reserve will finally pull the trigger on interest rate rises keeps changing.

Source: Bloomberg

Weak US GDP seen as ‘anomalies’  
Last night’s FOMC statement might not have given the markets all the answers they were looking for – but it did suggest that interest rate rises in 2015 will still be on the cards. The general sentiment seemed to suggest that although the FOMC recognised the disappointing levels seen in the latest GDP figures – along with the general cooling of others – they felt that these were more anomalies rather than shifts in trends. The fact remains that the US economic first-quarter had been adversely affected by both port closures and particularly awful weather conditions.

Earlier in the week a Bloomberg survey suggested that the general institutional view was that the FOMC would not raise rates until September and last night’s statement has done little to change that thinking. The short-term outlook could well see further upside to GBP/USD while this rebalancing of the dollar’s strength continues. However, further selling pressure is surely not too far away – especially as we approach the 200-day moving average.

Weak dollar strengthens euro
Having spent so long as the driving force, over the last couple of weeks the dollar has eased back. This has given the likes of the euro an opportunity to claw back some of the losses that it has made over the previous months. As ever, questions surrounding the long-term participation of Greece in the eurozone continue to dominate EUR/USD thinking.

Recent developments have seen Syriza drop the Greek finance minister, Yanis Varoufakis, from the latest negotiation team. Considering how he has managed to rub a lot of the eurozone’s finance ministers up the wrong way, this might bode well for these latest talks. Much like GBP/USD, a rebalancing of interest rate raises timelines in the US have contributed to these recent moves.

The last 24 hours have seen EUR/USD flirt with the $1.1200 level and move into overbought territory, regardless of the short-term squeeze higher. The next year will see extensive pressure on the euro as the European Central Bank continues to devalue the currency with quantitative easing. 

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