Fed-inspired dollar selloff pauses as focus shifts to BOE

The dollar faced heavy selling pressure during FOMC Chairman Jerome Powell’s press conference late Wednesday and the US Dollar Index recorded its largest one-day loss since early March, falling nearly 1%. The greenback consolidates its losses early Thursday as the market focus shifts to the Bank of England’s (BOE) policy announcements and Governor Andrew Bailey’s press conference. Later in the session, the US economic docket will feature the weekly Initial Jobless Claims and the Unit Labor Costs data for the first quarter.

Although the Fed decided to hike its policy rate by 50 basis points (bps) as expected, it adopted a less aggressive approach to the balance sheet reduction than expected. The Fed said that it will begin trimming the balance sheet on June 1, starting with a $47.5 billion cap on monthly runoff and rising to $95 billion monthly after three months.

When asked about the possibility of the Fed opting for 75 bps rate hikes, Powell said that they were not “actively considering” them and added that 50 bps hikes will remain on the table for the next couple of meetings. The 10-year US Treasury bond yield declined more than 1% on Wednesday and Wall Street’s main indexes rose nearly 3%. Nevertheless, US stock index futures trade in negative territory early Thursday, pointing to a cautious market mood.

EUR/USD rose sharply in the second half of the day on Wednesday and reached its highest level in a week at 1.0642. The pair stays relatively quiet around 1.0600 early Thursday.

GBP/USD gained more than 100 pips on Wednesday but lost its traction ahead of the BOE announcements on Thursday. The pair was last seen losing 0.7% on the day at 1.2540. The BOE is expected to hike its policy rate by 25 basis points to 1% but the bank might turn more patient with regard to future tightening steps given the loss of momentum in economic growth.

USD/JPY dropped to a fresh weekly low of 128.65 late Wednesday but managed to stage a rebound toward mid-129.00s in the European morning.

Gold capitalized on falling US Treasury bond yields and gathered bullish momentum on Wednesday. XAU/USD is already up 1% on Thursday and was last seen testing $1,900.

Risk flows helped Bitcoin find demand late Wednesday and BTC/USD rose more than 5%. Nevertheless, the pair continues to trade below the key $40,000 level early Thursday. Ethereum advanced to its highest level in a week on Wednesday and was last seen trading within a touching distance of $3,000.

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