Until Wednesday, it’s all about Risk Sentiment
Broad-based USD selling after the UK market shut on Friday helped GBPUSD rise to a high of 1.4436. A minor bout of profit taking saw the pair end the week at 1.4381 levels. This was the second week of gains as the so-called ‘Brexit’ issue has taken a backseat.
With a relatively quiet economic calendar today, pre-positioning for the Federal Open Market Committee (FOMC) policy announcement (rate decision) may open the door for a cautiously risk-off mood as the day progresses. The consensus is that Fed Chair Yellen and company will keep rates unchanged, but may offer commentary that clashes with investors’ dovish posture.
With no Eurozone data released on Friday, the Euro started to weaken against both the Pound and the Dollar as the market started to price in the effects of the European Central Bank’s (ECB) announcement of a comprehensive package of easing measures.
The Euro sell off started in the morning session on Friday against the Pound and continued for much of the day. The pair opened on Friday at 1.2776 and has opened this morning 1% higher at 1.29073. EURUSD opened Friday morning at 1.1177, though Euro selling seemed to be matched by Dollar weakness as the pair fell to find support at 1.0866, before reversing and opening this morning at 1.1143.
The Pound’s two week Cable rally could end if the Bank of England (BoE) tilts towards the dovish side at Thursday’s Interest Rate Decision meeting. After previous mentions of UK rate cuts, and their likelihood and suitability, the ECB’s “bazooka” has increased the pressure on UK policy makers to stay dovish.
Data to watch: 10am Industrial Production YoY & MoM (Jan).