The U.S. dollar ended the day higher against all of the major currencies despite the relatively subdued reaction to the Federal Reserve's November monetary policy announcement.  As expected the Fed unanimously decided to leave interest rates unchanged and their forward guidance unchanged. 

According to the FOMC statement, U.S. policymakers see economic activity rising at a solid rate despite the recent hurricanes. This positive outlook and their belief that the storms won't alter the economy's medium term course offset their concerns that inflation for items other than food and energy remained soft.  With spending rising at a moderate rate, investment picking up, the labor market continuing to strengthen and unemployment declining, investors saw the statement as a green light for December tightening.

After the rate decision, rate hike expectations for December increased from 82.8% to 92.3%.  Many sources are also saying that Jerome Powell will be President Trump's pick for Fed Chair.  As the market has fully discounted a Yellen departure, as long as Trump picks Powell or Taylor and not someone from left field, the dollar will rise as the uncertainty recedes. The announcement is expected on Thursday along with the Republicans' tax reform bill, which was delayed from today.  Unless there are any unexpected surprises on either front, the dollar should rise on these announcements.

With the FOMC rate decision behind us, the market will shift its focus to the Bank of England's monetary policy announcement. The market is pricing in a 90.4% chance of a hike tomorrow but we're not so sure that the BoE is ready to move especially given the larger trade deficit, recent weakness in manufacturing activity, retail sales and slowdown in CPI growth. Investors clearly feel different with the strength of sterling reinforcing rate hike expectations but market participants believe that even if the BoE stands pat in November, they'll hike in December with yearend rate hike expectations hovering just over 91%. These hawkish views were driven by the minutes from last month's BoE meeting, which revealed that a majority of MPC members see "scope for stimulus reduction in the coming months."  On that same day, BoE Governor Carney confirmed that not only have the odds of a hike have increased but he is among the majority on the MPC who see the need to change stimulus. 

However since then, we've heard Carney say inflation is likely to have peaked in October.  A hike could wait until December, but many investors believe the hike will happen in November because it will be accompanied by a Quarterly Inflation Report and a press conference that gives Carney the opportunity to explain the change and manage the market's future expectations.

If the BoE hikes, it would be wildly positive for sterling and could take the currency up to 1.3350.  Sterling will still rise if they leave rates unchanged but strongly suggest that a hike is coming in December but if they leave rates steady and suggest that a hike could still be a few meetings away, we could see GBP/USD hit 1.31.

Tomorrow's BoE announcement will be particularly difficult to trade because aside from hike or no hike, the number of people who support the move (or lack thereof), their updated economic forecasts and forward guidance will all play a role in how the currency trades.

Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD falls toward 1.19 after robust US Nonfarm Payrolls data

EUR/USD is trading above 1.19 after dipping below that number in response to the US Nonfarm Payrolls, which showed an increase of 379K jobs in February. Higher yields in response to Powell are keeping the dollar bid.

EUR/USD News

GBP/USD recovers after post-NFP dip below 1.38

GBP/USD is trading above 1.38 bus till down the day. The US gained 379.000 jobs, roughly double than expected and supporting the dollar. The Senate's stimulus debate is eyed.

GBP/USD News

XAU/USD battles 1700 level

Gold is staging a rebound toward $1,700 amid proift-taking ahead of the weekend but remains on track to close the third straight week in the negative territory.

Gold News

Ethereum price primed for a swift recovery as the network prepares for a major update in July

Ethereum price aims for a significant recovery towards $2,000. A major upgrade scheduled for July intends to fix the problem with gas fees on Ethereum. ETH miners are not happy with the decision.

Read more

US Dollar Index pushes higher to 92.20 on stellar Payrolls

The march north in the greenback remains unabated and trade in fresh 2021 highs beyond the 92.00 hurdle when tracked by the US Dollar Index (DXY).

US Dollar Index News

Forex Majors

Cryptocurrencies

Signatures