Although
on Wednesday, as widely expected, US interest rates were raised by 0.25% to a
new band of 1.5%-1.75%, investors were more concerned with the dot-plot and
Powell’s press conference. While the policy statement was generally positive
and US economic growth was revised higher for 2018 and 2019, a crucial
ingredient for hawks was missing.
There
is a suspicion that the Fed heavily disappointed markets by leaving the
dot-plot unchanged for 2018 at a grand total of three hikes. Although there was
a small upgrade to the dot-plot forecast for 2019 and 2020, this did little to
support King Dollar. Jerome Powell’s noticeable caution during his conference
and statement on how there was no clear indication in data of an accelerating
inflation, encouraged investors to attack the Dollar further.
Taking
a look at the technical picture, the Dollar Index was vulnerable to heavy
losses after the Federal Reserve turned out to be less hawkish than
anticipated. The breakdown below 90.00 could invite a decline towards 89.50 and
89.00, respectively.
Sterling higher
ahead of BoE
The
main event risk for Sterling today will be the Bank of England monetary policy
decision, which is widely expected to conclude with interest rates left
unchanged at 0.5%.
Investors
will direct their attention towards the language of the statement for any fresh
insights about potential timings of a change in UK interest rates this year. A
sense of optimism over the Brexit transition deal, coupled with the fact that
wage growth accelerated at the fastest pace in over two years, has boosted
speculation of a rate hike in May. Sterling could receive a further boost if
BoE policymakers mirror these expectations by adopting a hawkish stance and
signalling a rate hike in May.
Focusing
on the technical perspective, the GBPUSD extended gains on Thursday with prices
hitting a fresh one-month high at 1.4170 as of writing. The combination of
Dollar weakness following Wednesday’s dot-plot disappointment and Sterling
strength has brought GBPUSD bulls back into the game. A breach above 1.4180
could encourage an appreciation towards 1.4260 and 1.4300.
Commodity
spotlight – Gold
It’s
remarkable how Gold prices soared on Wednesday despite the Federal Reserve
raising interest rates. The reason behind Gold’s incredible rebound could be
linked to the fact the Federal Reserve was less hawkish than anticipated, which
simply weakened the Dollar.
With
the Dollar tumbling after the US Federal Reserve disappointed investors, Gold
found itself back in fashion. The yellow metal could build on the current
upside momentum, if political uncertainty in Washington and lingering trade war
fears support the flight to safety.
From a
technical standpoint, Gold has broken above the $1330 resistance level.
Previous resistance at $1330 could transform into a dynamic support that
encourages an incline higher towards $1340. Alternatively, a failure for bulls
to keep above $1330 could invite a decline back towards $1314.
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