General market theme
Quite volatile trading action over the past 24 hours in the currency markets, on the back of surprises both in terms of economic and political reasons as well.
The British pound was in focus in light of the employment data report, but despite the fact we expected the report to reveal weakness in the labour market, it printed better than expected.
At the same time, fresh polls on the EU referendum showed that the Remain vote has been gaining ground, and the pound rallied higher on the back of this renewed optimism.
However, maybe the most important story of the day was the release of the Fed minutes from their last meeting, where we found out that most policymakers are keen on a rate hike in June should the market conditions call for one.
Now this was an unprecedented change in dollar’s outlook, given that investors had taken the idea of a hike within the next months off the table, but it now seems that conditions have changed and we need to take that into account.
Price action highlights
The euro suffered on the back of the Fed minutes’ release and the rate dropped below the 1.1300 level to trade as low as 1.1200. The bias is to the downside at this time, as the fresh support from the Fed has re-ignited the dollar rally, and we could see further losses up ahead.
Today though, price action will take its cue from the ECB account on its monetary policy meeting. Traders are interested to hear from Mario Draghi and the rest of the central bank members.
The cable rallied to the upside on the back of the better than expected employment figures and the renewed confidence in the Remain vote on the upcoming EU referendum. The rally drove the pound above the 1.4600 level, and even though it corrected lower overnight, the bias is for it to continue.
The Retail Sales report will be released this morning, and further strength in the domestic economy could drive the UK currency to fresh highs above the 1.4600 level.
Focus of the day
The British Retail Sales and the ECB meeting on monetary policy will be the two main events of the day, while later in the afternoon a couple of policymakers’ speeches in the US will also attract our attention.
The pound and the dollar are in focus on the back of yesterday’s events, hence we expect further price action in the instruments we monitor in our report.
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