FOMC fallout and more dollar weakness

Key points

• Messages from the BoE and ECB Thursday morning led to a surge in pound and euro, respectively
• EUR/USD hit 1.1000 after starting the week under 1.0800
• GBP/USD neared 1.2800 to hit a 4-month high

Pound and euro rise on bank meetings

Dollar weakness continued last week in the wake of signals from the Federal Reserve indicating a potential shift to a more dovish monetary policy stance. Such a pivot, after a period of aggressive interest rate hikes, has sent ripples through the forex markets, as traders adjust their strategies to account for the changing interest rate landscape.

This shift in tone from the Fed has led to a repricing of expectations regarding future rate cuts, and the dollar has seen a notable downside as a result. The anticipation of rate reductions has been bolstered by the hawkish positions taken by other central banks, such as the Bank of England (BOE) and the European Central Bank (ECB), who met Thursday morning.

As a result, both the euro and pound gained further against the dollar throughout Thursday. At midday on Thursday, EUR/USD hit 1.1000 and GBP/USD got as high as 1.2790. This move marked the highest price for the pound since August, and matched November's high for the euro. Pound closed the day up 130 pips while the euro gained 98 pips.

Traders are also paying close attention to other central banks, particularly the Bank of Japan (BOJ), which has hinted at potential rate hikes after an extended period of ultra-low rates. Such a move could have a considerable impact on the USD/JPY pair, which has been subject to the dollar's strength over the past years.

Looking ahead, traders are faced with the challenge of navigating a forex landscape that is highly sensitive to central bank policies and economic data releases. Interest rate expectations will continue to sway currency valuations, and traders must remain vigilant to the dynamic interplay between market sentiment and policy signals.

How to trade US dollar

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open and close positions on USD pairs

Trading forex requires an account with a forex provider like IG. Many traders watch major forex pairs like EUR/USD and USD/JPY, which can be found in IG's platform under the 'Major' pairs tab, for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.