Dollar weakness emerges

Having spent the first half of the week selling off, GBP/USD has found a little support.

GBP/EUR
Source: Bloomberg

GBP/USD bounce looks to be short-lived
Yesterday saw the Monetary Policy Committee confirm the voting at the last interest rate decision meeting. Unsurprisingly, the vote remained 9-0 against any change. However, the minutes of this meeting did reveal that two members have voiced their thoughts on the possibility of raising the rate.

The currency markets are still factoring in the first US interest rate rise for September 2015, and for the UK they are looking toward either Q2 or Q3 2016. For the time being, these two timelines look unlikely to change. The big unknown in this equation remains to be when the UK will hold a referendum on its inclusion in the EU and how close the results are.

The inflation picture for the UK still remains clouded but this morning’s much better-than-expected retail sales figures might well help it move closer to the targeted 2% level.

GBP/USD has bounced in the last 24 hours as we have once again heard from the US Federal Reserve. However, the reasons for optimism still remain stacked in favour of the dollar and last week’s high could well be a barrier that GBP/USD finds too tough to break.

EUR/USD to test 100-DMA
The start of a two day European Central Bank monetary policy meeting, with numerous finance ministers and central bank governors due to speak, could well shed a little more light on the general health of the European nations. That being said, with so many viewpoints this might well be more of an opportunity for the waters to be muddied than anything else.

It will be interesting to see how vociferous ECB President Mario Draghi is. Market watchers had noticed that, since the start of the ECB’s quantitative easing scheme, he has taken a little more of a back seat in events – that is up until last week.

Mr Draghi’s speeches are almost seen as an inverse indicator as to how worried we should be about the eurozone. The more frequent and bullish he is, the more worried we should be. Or maybe that is a little too bearish.

As EUR/USD moves back down to test the support of the 50 and 100-day moving average, the pendulum of power appears to have swung back in favour of the dollar. 

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