The market digests the Fed’s hawkish policy shift and sends the U.S. dollar higher. The euro declined on the back of a strengthening dollar and thus, EUR/USD headed towards the lower barrier of its recent sideways trend channel. We now expect a next support to come in at 1.11 and 1.1070. Current resistance levels are however seen at 1.12/1.1225.
While the EUR/USD was the best performer for day traders Thursday, the GBP/USD went on a roller coaster ride after the Bank of England’s split came as a surprise for sterling traders. The pound rose against the dollar after a surprise division within the BoE’s monetary policy committee, with three members of the MPC voting for a rate increase. Given this hawkish shift despite the uncertainty that follows last week’s U.K. election, a rate hike may be closer than the market currently expects. The pound rose towards 1.28 in an initial reaction to the MPC statement. A break above 1.2820 may send the pound higher towards 1.2860 while a sustained rally in the GBP/USD might be difficult given the renewed strength in the USD. Sterling bears may however wait for a renewed break below 1.2720 in order to sell pounds towards 1.2650.
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