The dollar surged against other major currencies overnight after the Federal Reserve Chair Jerome Powell delivered a hawkish press conference following the decision to keep rates on hold.
Despite US GDP growth rebounding to 3% yesterday, the Fed is taking a cautious approach to inflation, downplaying the prospect of near-term rate cuts, and the dollar has soared.
USD/JPY broke through 149.00 while GBP/USD sank again and extended the pound’s losses against the dollar this month.
Yesterday, the UK Investor Magazine suggested resistance in the 149.00 region could be broken if the Fed delivered a hawkish press conference. And USD/JPY did just that as traders rolled back their bets on the Fed making more than one interest rate cut this year.
GBP/USD extended its remarkable decline below 1.3300 and looked set to close the month out around 400 pips lower than where it started. The Bank of England is now likely to cut rates once, maybe even twice, more than the Fed this year, and further declines in cable are likely this quarter.
While the dollar is on the front foot today after a week-long rebound, some analysts feel it could run out of steam soon.
“Not only have we charged about 2.5% higher in the last week (a huge move in FX land!), but the DXY is also starting to run into resistance at the 100-day moving average, and the 100 figure,” said Michael Brown Senior Research Strategist at Pepperstone.
“As a longer-run dollar bear, this is the sort of region where fading the move starts to feel attractive from a risk-reward perspective.”