Dollar drops as sterling shines

GBP/USD is higher after a more hawkish-than-expected tone from the Bank of England inflation report, while EUR/USD is strong following the ceasefire in Ukraine.

Euro notes
Source: Bloomberg

GBP/USD holds $1.54

The pound has rocketed against the dollar after Mark Carney delivered a more hawkish inflation report than the market anticipated yesterday, and GBP/USD has breached the $1.54 level. Despite Mr Carney noting he would cut rates further if needed, the upgrade to UK growth and wage forecasts caught traders’ attention.

Even if the UK enters deflation it will be short-lived, owing to weak oil prices and not fading British demand, which will help GBP/USD shake the downward trend that it has been stuck in.

There is consolidation in the $1.54 region, and if the pound fails to hold this metric the downside support at $1.5340 will be brought into play. If $1.5340 is punctured then $1.53 will be the initial target and then 50-day moving average of $1.5275 will be in sight.

Ukraine helps euro

The ceasefire in Ukraine gave the single currency a much needed shot in the arm, as eurozone economies like Germany and France remain heavily dependent on Russian energy. As relations between Moscow and The West improve it will keep the euro in good stead.

The Greek situation is a far more pressing matter for the euro, and even though no deal has been reached the market is hopeful that a compromise will be brokered. This isn’t the first time that Greece has been in crunch talks with the European Central Bank over funding, and every occasion resulted in a deal being hammered out.

At 10am (London time) the eurozone will release the fourth-quarter flash GDP report, and the consensus is for a reading of 0.2%. Should expectations be met it will trigger short-term buying.

EUR/USD is receiving support at $1.14, and if held the upside resistance at $1.15 will be the target. A drop back below $1.14 will turn the level into resistance and the 100-hour moving average at $1.1335 will be the brought into play. 

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