Currency markets remained active and price action was very interesting over the past day and the theme was once again the aftermath of the FOMC meeting on monetary policy. We’ve explained in our analysis yesterday that investors were a bit disappointed from Yellen’s comments on her press conference as many of them expected a clear reference to a September rate hike.
But we know that this is not the way an experienced policymakers acts, the Fed boss clearly hinted on a rate hike this year and actually let everyone understand that we might be looking at 2 or even 3 hikes by the end of 2015. At the same time though she allowed the Fed some flexibility by not committing to anything rigid. Hence even though we expect the Dollar to strengthen again soon over the short-term we could see more losses.
Yesterday’s price action was more or less on the same tempo as we mentioned above, the Euro and the Cable edged higher on the back of the Dollar weakness. Even though for the British currency the rise is consistent with the sentiment of the fundamentals the Euro kept climbing even though the situation with Greece seems to have to positive end.
The Euro rallied above 1.1400 yesterday disregarding the complete lack of progress in the talks between Greece and its creditors. However over the later part of the day and after the US markets came on line the Euro gave up some of its gains and retreated to 1.1340. This might be due to the combination of 2 effects: first, traders are banking some short-term profits after the rally earlier in the week and secondly, they don’t want to be exposed on the Euro over the weekend given the risk Greece poses. Should the retreat continue we could see the Euro threatening to break below the 1.1300 area.
The Cable extended its gains at the same time reaching as high as 1.5930 on the back of a bullish Retail Sales report. The UK currency has been climbing for an extended period of time now and even though the climb is backed from strong fundamental developments the risk of a reversal grows stronger. For now the Cable has more room to the upside and for a reversal to take place we would need to see a change in the sentiment of the markets which we don’t see happening today.
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