Forex Today: Dollar holds its ground as Fed tapers, eyes on BOE, mid-tier US data

Here is what you need to know on Thursday, November 4:

The dollar moved sharply in both directions during FOMC Chairman Jerome Powell’s press conference and ended up closing the day modestly lower against its major rivals on Wednesday. Ahead of the Bank of England’s (BOE) Interest Rate Decision, markets remain relatively calm and the greenback seems to have regathered its strength. The European Commission will release the updated Economic Forecasts for the euro area. The weekly Initial Jobless Claims, third-quarter Unit Labor Costs and September Goods Trade Balance data will be featured in the US economic docket.

As expected, the US Federal Reserve decided to reduce its asset purchases by $15 billion per month, starting mid-November. In its policy statement, the Fed adopted a flexible tone by noting that it is prepared to adjust the pace of purchases in the coming months if warranted by the changes in the economic outlook. Regarding the rate outlook, Powell reiterated that a rate hike won’t necessarily follow right away when the quantitative easing program concludes. The chairman said that they believe inflation will start to ease toward 2% in the second half of 2022 and emphasized that they have a lot of ground to cover regarding their employment goals. 

Federal Reserve tapers, Treasury rates rise and markets yawn.

Meanwhile, the data from the US showed that employment in the private sector rose more than expected in October and the economic activity in the service sector expanded at its strongest pace on record with the ISM Services PMI jumping to 66.7 from 61.9 in September.

The Fed’s tapering announcement had little to no impact on market sentiment and the S&P 500 Index, once again, posted a new all-time high. The 10-year US Treasury bond yield rose more than 3% on Wednesday and now holds above 1.6%, easing concerns over a flattening yield curve. China’s Shanghai Composite and Japan’s Nikkei 225 indexes are up 0.7% and 0.8%, respectively, reflecting the upbeat market mood.

EUR/USD climbed above 1.1600 in the late American session on Wednesday but seems to have lost its momentum already. Several European Central Bank policymakers said on Wednesday that there was no reason to hike rates next year. The data from Germany showed that Factory Orders rose by 9.7% on a yearly basis in September.

GBP/USD lost its traction after rising toward 1.3700 on Wednesday and now stays in the negative territory while waiting for the BOE’s policy announcements. The bank could opt out for a 15 basis points rate hike to ease off the price pressures. A bigger rate hike is likely to provide a boost to the GBP while a no-hike could trigger another leg lower in the pair. Governor Andrew Bailey’s comments on the rate outlook can also ramp up the volatility later in the session.

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Gold fell to its lowest level in more than two weeks below $1,760 before going into a consolidation phase. XAU/USD is posting small daily gains around $1,770 in the early European session but looks fragile following Wednesday's decline.

Cryptocurrencies: Bitcoin is struggling to find direction and continues to fluctuate above $60,000. Ethereum notched a new all-time high above $4,600 on Wednesday and seems to have gone into a consolidation phase around $4,500.