Dollar benefits from Fed talk, all eyes on the Pound today for the BoE events

The US Dollar has been the center of attention over the past 24 hours of trading with Fed policymakers setting the tone for the expected NFP report on Friday. Both Fed boss Janet Yellen and FOMC member Dudley reiterated that a December rate hike is still on the table and for that to take place a robust NFP report is required on Friday. At the same time the recent string of data coming out of the US proves that the domestic economy is on a good path of progress and that the Fed is right in considering to normalize their monetary policy.

We do think that a rate rise in December is still the least likely scenario as it would require continuous impressive data coming from the US and no clouds on the horizon. However the fact that the Fed policymakers are putting their support behind such a possibility set the tone for the Dollar until the end of the year. And that support was clear yesterday as the Dollar enjoyed a good performance against the rest of the major currencies.

Looking towards today’s expected price action our attention is definitely drawn to the Pound as over the next 24 hours the BoE will decide its monetary policy, will disclose their forward guidance and will also release their Inflation Report along with comments regarding the domestic economy. Yesterday the pickup in the Services PMI wasn’t reflected on the Cable’s performance as the strong Dollar gains prevented the UK currency from ticking higher.

Today however we could see a strong performance by the UK currency if the BoE remains bullish as they have been recently and talk up the Pound’s outlook. Recent data from the UK economy has been robust and that should translate into a bullish rhetoric from the central bank in its comments accompanying the rate decision and the Inflation Report.

The Cable traded either side of the 1.5400 level yesterday remaining in a consolidation pattern between the 1.5450 and 1.5350 levels as the support behind the Pound is fighting the robust performance of the Dollar recently. A bullish outlook from the BoE today has the potential to propel the currency towards the 1.5500 ceiling and possibly allow it to overcome it depending on the bullishness of the central bank’s tone.

On the other hand, the Euro has been weak again and has retreated against the advancing Dollar during the course of this week. Yesterday the Single currency ticked below the 1.0900 area printing a 1.0850 low and with the outlook being bearish and the Fed talking up the Dollar we could see further losses towards the 1.0800 area before the release of the NFP report tomorrow with a view to go even lower if the report prints strong.