Dollar Dented By Hawkish ECB/BOE Meetings
DXY Drops From Highs
The US Dollar fell sharply yesterday, reversing the post-FOMC gains seen late on Wednesday, with the DXY plunging 1.3% on the session. The move was fuelled by a hawkish repricing of traders’ central bank expectations with the Fed now the only G7 central not currently expected to hike rates this year. At the March rates meeting on Wednesday, the Fed reaffirmed its view that a rate cut this year was still expected, though warned over uncertainty in the outlook linked to the Iran war. This softer messaging was outshined by firmly hawkish signals from the ECB and BOE.
Hawkish ECB & BOE Signals
ECB chief Lagarde struck a much more concerned tone over inflationary risks linked to the Iran war in her post-meeting press conference yesterday. This was followed by a Bloomberg report noting that the ECB is already considering hiking as early as next month. The BOE meeting was a decidedly hawkish affair too with the policymakers voting 9-0 in favour of a hold (7-2 expected) and the banks most openly dovish member Dhingra voiced support for a rate hike if needed to cool any jump in inflation. As such, traders are now pricing in a more than 40% chance of a BOE hike next month. With clear divergence between ECB/BOE and Fed expectations, USD could come under further pressure near-term unless we start to hear a more hawkish shift from Fed policymakers in coming weeks.
Technical Views
DXY
The rally remains capped for now by the 100.36 level though the subsequent correction lower has found support into 99.15. While this level holds, focus is on a fresh push higher with 101.91 the next bull target. If we do slip lower still, 98.24 and the retest of the broken channel will be the next support area to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.