Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.

EUR/USD and GBP/USD under more pressure while USD/JPY tops ¥131

Dollar strength has lifted USD/JPY, while causing more losses for EUR/USD and GBP/USD.

EUR/USD drops back to $1.05

EUR/USD remains unable to rally, with the gloomier global outlook not helping matters. But the real driver continues to be the yawning gap between the Federal Reserve (Fed) and the European Central Bank (ECB). The former has not only begun its tightening efforts, but has sped them up, moving to raise rates by 50 basis points at its most recent meeting, having previously raised them by 25 bps.

The latter is still discussing the timing of the first move, although it may occur earlier than previously anticipated. As a result, EUR/USD has little reason to move higher, although a fresh move below the $1.05 level has yet to take place. After such a big drop over the past six weeks, a rebound would not be surprising, but it would leave the downtrend firmly in place.

GBP/USD falls further as UK outlook darkens

The pound remains firmly on the back foot against the US dollar with GBP/USD, falling to $1.23 and reaching a fresh two-year low against the dollar. While the Bank of England (BoE) did raise rates last week, it is very cautious on the outlook for the UK economy. As a result, it may well look to pause its hiking cycle in the medium term, even as inflation continues to hit the UK economy hard.

Further downside thus seems likely for GBP/USD, even in its current ‘oversold’ condition. $1.225 and then $1.208 become the next levels to watch in the short term. Like EUR/USD, the pair is stretched to the downside, so a rebound is possible, but it would require a move back above $1.263.

USD/JPY moves back above ¥131

Dollar strength continues to carry the pair higher, pushing on in its uptrend. The wide gulf between the Bank of Japan (BoJ) and the Fed remains the key reason why the USD/JPY continues to see such impressive strength to the upside.

While the Fed has so far not officially intimated that it might look to boost rates by 75 bps, it remains a possibility. As such, the outlook for the pair seems to point towards additional upside, with a longer-term target towards ¥135.00. So far, there is still little sign of a reversal, although a drop below ¥129.00 would point towards the potential for such a move.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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