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USD Tumbles, EUR and GBP Higher as Investors Eye ECB and BoE

USD Tumbles, EUR and GBP Higher as Investors Eye ECB and BoE

Today is another big day for markets as EUR and GBP investors turn their focus to the upcoming policy meeting in UK and Europe. While each central bank is widely expected to deliver a 50 bps rate hike, the interest rate trajectory is contradictory. Meanwhile, the dovish outlook  for interest rates in the US following yesterday’s Fed meeting pushed the USD to dive against rivals.

US Dollar Down to 9-month Low on Dovish Fed 

On Thursday, the US dollar index (DXY) sank to its lowest in nine months against to a basket of currencies with the DXY trading 0.14% lower at 101.8. Despite the Federal Reserve restating their commitment to keep raising interest rates, markets still believe that economic struggles will prompt the bank into cutting rates later this year.

Fed Chair, Jerome Powell, noted that it is entirely possible for the benchmark interest rate to remain below 5% and therefore inflation can be brought down to 2% without any severe economic repercussions. However, the Federal Reserve still showed signs of additional rate hikes but Powell’s words ignited speculation that this tightening cycle could possibly come to an end soon.

GBP/USD Up with BoE Meeting in Focus

It is a crucial day for the Pound Sterling, with the Bank of England announces its first policy decision of the year. Analysts anticipate a 50 basis point hike to 4.00%.

On Thursday, the Bank of England is due to raise borrowing costs for the 10th consecutive time in order to combat soaring inflation – but it may also provide a subtle clue about when this drastic rise will taper off.

As Britain’s economy is already predicted to be worse than its counterparts in 2023 and possibly enter a recession, Governor Andrew Bailey and his colleagues must evaluate how much of an impact their rate hikes since December 2021 will have on the economy.

On Wednesday, GBP/USD rose more than 50 pips and ended its three-day losing streak. At early Thursday, the pair is still trading slightly below 1.2400 in a consolidation phase. Forecasts suggest that BOE will increase by 50 bps but investors are currently hesitating to bet on Pound Sterling further since there is an opportunity for the BOE to point out termination of tightening cycle due to deteriorating growth outlook. BoE Decision comes out at 12:00 PM GMT.

EUR/USD Eyes ECB Rate Decision

The US Dollar weakness pushed the EUR/USD to make remarkable gains beyond 1.1000 for the first time since early April. With ECB Chair Lagarde’s December comments being notably more hawkish than expected, investors and traders will be monitoring today’s policy meeting intently as they anticipate a 50 basis point rate increase from the central bank in their effort to control inflationary pressure. The Bank will announce its rate decision at 1:15 PM GMT while the press release will be hold 30 minutes later.

It is essential to note that the pair’s surge beyond 1.1130 must be validated by breaching March 2022 peak at 1.1185 before attempting to break the mid-2022 high of 1.1495. On the downside, it could find sustained support near 1.0950-25; this area has been well established since March 2022.

EUR/GBP Climbs ahead of BoE and ECB

The EUR/GBP has been on the rise for four consecutive days and is now at its highest level in months. Traders anticipate further big rate hikes by the ECB, which holds up the Euro’s strength. This was confirmed by recent hawkish commentary from several ECB sources, which helps propel the pair cross forward.

On the other hand, speculations that the BoE might be close to finishing their cycle of raising rates weighs down on GBP’s value.

Traders are becoming increasingly wary as attention turns to the upcoming policy decisions from both the Bank of England and European Central Bank.

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