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EUR/USD and GBP/USD surge while USD/JPY falls as dollar weakens after Fed meeting

The Fed’s shift last night has seen a rapid response from FX markets, as the dollar weakens in expectation of cuts to interest rates.

EUR/USD stages turnaround in wake of FOMC

It is tough trading EUR/USD. First a dovish European Central Bank (ECB) sends the pair downwards, and then a dovish Federal Reserve (Fed) comes along and sends it heading skywards.

It is possible that the bounce this week from $1.12 creates a higher low for the pair, perhaps bottoming out after declines since the end of September. A rally above the early June high of $1.135 would be needed to provide a more bullish view in the longer term. Having rallied by 100 points in the past two days, a pullback may occur, and it will be vital to watch this to see if buyers appear to create an intraday higher low.

GBP/USD soars after dovish Fed

GBP/USD has surged thanks to the weakening US dollar and is now poised to challenge the $1.275 area that marked the peak in late May and early June. A near-straight line move since Monday may well result in a short-term pullback, but this may see further buyers emerge.

No one currently expects the Bank of England (BoE) to follow the dovish path of the ECB and the Fed, but there is not much the UK central bank can say that will convince anyone. The most credulous that its next move will be a rate hike.

USD/JPY breaches May low

A dovish Fed has resulted in a push lower for the USD/JPY pair, and is currently moving below the low of late May around ¥107.80.

Further declines target ¥106.80 in the short term. As with EUR/USD and GBP/USD, the move since Monday has been rapid and relentless, so a short-term rebound is possible, but this would likely set up a fresh selling opportunity if the recovery fails to move back above ¥108.50.

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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