US Dollar Trades Cautious as Focus Shifts From Fed to Other Central Banks
The US dollar’s latest rally has come to a pause a day after the FOMC saw the Fed confirming plans to speed up its tapering process for asset purchases, and investors now turn their attention to hear from other leading central banks. At the time of writing, the US dollar index DXY is trading at around 96.25.
The greenback is likely to experience rangebound trading as the optimism surrounding the Fed’s tones were almost fully priced in ahead of the release of its statement in the previous session. Amid a faster pace of economic recovery and soaring inflation, the US central bank is planning to wind down its monetary stimulus measures sooner than originally planned, giving traders hope for an interest rate hike sometime in 2022.
The focus now shifts on other major central banks, including the ECB, BOE, SNB and the Norges Bank, all of which are scheduled to hold their monetary policy review meetings later today. In the coming days, markets will also get to hear from the BOJ, although no surprises are expected there.
[[EUR/USD-graph]]
EUR/USD could experience some volatility if the ECB offers clues on the PEPP and asset purchases, especially if policymakers shed light on when they would be eased. However, the ECB is unlikely to offer any hints about a rate hike anytime soon, keeping the outlook for the Euro bearish in the near term.
GBP/USD is also trading mostly steady as markets wait to hear from the BOE on tackling the surge in inflation. While there were hopes for a rate hike by the BOE earlier, with the British government reimposing restrictions amid a spike in Omicron cases, the likelihood of this has diminished.
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