Fed remarks put the Dollar's outlook under doubt, more losses ahead?

General market theme
A day of strong losses for the Dollar yesterday that declined across the board against all of its major counterparties. It was the bearish comments coming from Fed policymakers’ lips that put the US currency under pressure over the past 24 hours, Fed voter Dudley mentioned that the current volatility in the financial markets could drive the Fed to delay further rate hikes for the time being. As a result the whole medium-term outlook of the Dollar is now under serious doubts hence the strong losses ahead of this month’s employment report.

Price action highlights
The Euro and the Pound didn’t miss out on the opportunity to gain against the Dollar yesterday on the back of the Fed commentary that drove the US currency significantly lower. The Euro exploded above the 1.1100 level running a 200 pips rally when investors realized that all the pro-Dollar positions they have been building during the final weeks of 2015 might now be useless.

Similar rally from the Pound that moved above the 1.4600 level on the back of the Dollar weakness extending its bullish rally to almost 500 pips since the beginning of the month. The UK currency has seen a very strong correction after weeks being in the red and now that the broader Dollar outlook is under doubt it could extend its gains further if the NFP report misses its mark on Friday. However, today’s BoE Inflation Report might take some of the momentum back if the central bank sounds bearish over the medium term outlook of the economy.

Focus of the day
As we mentioned above the really important event of the day today is the release of the Bank of England’s Rate Decision and its Inflation Report that will take into consideration the last 3 months’ performance of the domestic economy and comment on its prospects over the medium-term horizon. Later in the day the Initial Jobless Claims figures and Durable Goods Orders reports from the US might not do much to affect the Dollar’s price action as everyone is now focused on tomorrow’s Non-Farm Payrolls report, especially after yesterday’s Fed comments.