Dollar eases back

The strength of the dollar has eased back while still remaining in the driving seat.

Euro
Source: Bloomberg

Having spent the whole week selling off, EUR/USD has found a little support in the overnight currency markets. Having drifted as low as $1.0715 earlier in the week, we have seen a slight bounce. This bounce has happened before today’s speech by Fed chair Janet Yellen – due to take place in the early afternoon. Although not specifically penciled in as a speech about interest rate decisions this will not stop the markets from drawing conclusions.

The institutional perception is still indicating at least one, and more likely two, interest rate rises in the US this year. This means we could well see parity in EUR/USD at varying times between June and December. With this being the case, I would maintain my view point that any decent bounce seen in EUR/USD should be used as an opportunity to sell.

GBP/USD has spent the majority of the last three weeks rangebound between the $1.500 and $1.480 levels. Over the course of the last week, it has been closing just above $1.480 and periodically on an intraday basis trading below. While the health of the UK economy is a little better than that of the eurozone, the fact that the eurozone is the UK’s biggest trade partner has weighed on the country’s ability to progress further in the recovery.

Tonight will see the second of the scheduled political TV programmes with leaders from seven of the major parties debating numerous issues. Due to the number of speakers and variety of questions, this looks more likely to be an event that will confuse rather than enable any clear conclusions to materialise.

All the issues currently hanging over the UK, including a general election that has a high chance of ending in a hung parliament, point toward further pressure on sterling. As such, any decent bounce on GBP/USD should be viewed as a selling opportunity.

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