The Federal Reserve’s hawkish outlook and the rate hikes are very well priced in by the market, so what we now see in both pairs EUR/USD and GBP/USD is a risk-on-mode amid extremely quiet trading conditions.
The EUR/USD remained stuck in a small range between 1.1390 and 1.1270 over the last 40 days. We see potential for a test of the 1.1420-area but recall the pair’s overbought situation.
The cable extended its upward movement and broke above 1.36. A next hurdle comes in at 1.3670 which could attract sellers.
Traders’ next focus is the U.S. CPI report scheduled for release today at 13:30 UTC. The headline inflation is expected at 7.0 percent y/y in December and core at 5.4 percent. These would be the highest readings in 30-40 years. Since faster Fed rate hikes are already priced in, it remains to be seen whether today’s data can boost forecast much further.
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