The US Dollar Index (DXY) snapped a five-day winning streak on Wednesday following the Federal Reserve’s policy announcements. The dollar selloff, however, seems to have eased early Thursday with the benchmark 10-year US Treasury bond yield regaining its traction. The Bank of England (BOE) will announce its interest rate decision and publish the Monetary Policy Summary later in the session. The weekly Initial Jobless Claims, May Housing Starts and Building Permits will be featured in the US economic docket.
The Fed hiked its policy rate by 75 basis points in June to the range of 1.5% to 1.75%. During the press conference, FOMC Chairman Jerome Powell refrained from confirming another 75 bps hike in July and caused US T-bond yields to retreat. In turn, the dollar struggled to preserve its strength. “It does appear the US economy is strong and well-positioned to withstand higher interest rates,” Powell said.
Commenting on the FOMC event, “Mr. Powell managed to reassure markets, which are his main audience, but his words will do little to buoy spirits across the country,” noted FXStreet Analyst Joseph Trevisani. “Americans will make their own decisions. Unless there is a swift and dramatic improvement in inflation, the window for a soft-landing has probably already closed.”
The BOE is expected to hike its policy rate by 25 basis points to 1.25%. There won’t be a press conference after the bank releases its statement and the vote split could trigger a significant market reaction.
EUR/USD closed modestly higher on Wednesday and seems to have gone into a consolidation phase above 1.0400 early Thursday. Following its ad hoc meeting, the European Central Bank (ECB) announced that it will apply flexibility in reinvesting the Pandemic Emergency Purchase Programme (PEPP) redemptions with a view to preserving the functioning of monetary policy transmission mechanisms.
GBP/USD gained nearly 200 pips and rose above 1.2200 on Wednesday. The pair trades in negative territory in the European morning near mid-1.2100s.
USD/CHF reversed its direction and closed in negative territory below 1.0000 on Wednesday after having registered gains in the previous eight trading days. The Swiss National Bank (SNB) will announce its interest rate decision at 0730 GMT.
AUD/USD capitalized on risk flows and recovered above 0.7000 late Wednesday. During the Asian trading hours, the data from Australia showed that Employment Change was +60.6K in May, compared to the market expectation of +25K. The pair stays relatively quiet at around 0.7000 early Thursday.
USD/JPY fluctuates in a narrow range above 134.00 after having lost more than 100 pips on Wednesday. In the early trading hours of the Asian session on Friday, the Bank of Japan will announce its monetary policy decisions.
Gold benefitted from the sharp decline witnessed in US Treasury bond yields and registered impressive gains on Wednesday. The yellow metal moves sideways slightly above $1,830 in the European session.
Bitcoin managed to stage a rebound after having tested $20,000 on Wednesday. BTC/USD was last seen trading at around $22,000. Despite having registered small gains on Thursday, Ethereum is down 17% so far this week and stays on the back foot near $1,200 early Thursday.