US Dollar recovers Fed-led losses, GBPUSD bears await BOE amid a sluggish session

Having witnessed a surprise reaction to the US Federal Reserve’s (Fed) 0.75% rate increase, traders consolidate moves in favor of the US dollar during early Thursday. 

The typical “buy on rumors, sell on fact” example drowned the Treasury yields and the US dollar the most in a many days before reversing the losses. 

The recovery moves appear as fears as the negative ones and propel the US dollar while drowning the commodities and Antipodeans with it. Equities also bear the burden of the market’s reassessment of risks attached to the hawkish central bank moves and printed fresh losses.

Prices of gold and crude oil remain pressured whereas the cryptocurrencies fade the relief rally from the multi-month low.

Following are the latest moves of the key assets:

• Brent oil remains pressured for the third consecutive day, despite positing mild gains around $120.
• Gold also pares the biggest daily jump in a month with a 0.12% intraday loss at around $1,831.
• USD Index jumps back towards the multi-year high, up 0.40% around 105.30.
• FTSE 100 losses 1.5% while DAX and EUROSTOXX50 are down 2.6% and 2.0% respectively.
• Wall Street benchmarks marked the biggest daily jump in over a week on Wednesday.
• BTCUSD and ETHUSD lose 4.0% and 6.0% respectively as sellers attack $21,700 and $1,150 in that order.

Buy on rumors, sell on fact

Thursday appears to be the mirror image of the post-Fed market reaction as yields and the US dollar rebound while riskier assets drop back as fears of hawkish monetary policies return to the table. Also challenging the market sentiment could be the anxiety ahead of the Bank of England (BOE) monetary policy meeting, as well as the Swiss National Bank’s (SNB) surprise rate hike.

On Thursday, the Fed announced a 75 bps rate hike and cut US GDP forecasts while raising the inflation expectations. However, comments from Chairman Jerome Powell ruled out a 100 bps rate hike and tamed hopes of such heavier actions in the future. This seems to have propelled the risk-on mood in the market.

That said, the US dollar’s fresh buying, backed by the recovery in yields, challenges the equities and commodities while crude oil has more to lose amid hopes of a slowdown in demand. It’s worth noting that the GBPUSD was the biggest loser among the G10 pairs amid fears of disappointment from the BOE. NZD/USD was the second in the line on downbeat NZ Q1 GDP whereas the Aussie also failed to cheer a rise in the Employment Change.

BTCUSD and ETHUSD retreat towards the multi-month low marked earlier in the week as market players lose confidence in the cryptocurrencies amid the US dollar’s comeback.

⏫ 🟢 Strong buy: USDCAD, USDTRY and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD, Brent oil

⬆️ 🟢 Buy: USD Index, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, gold, BTCUSD

BOE can entertain traders before Powell

Although BOE is expected to announce a 0.25% rate hike, it can surprise the markets like the SNB and propel the GBPUSD in the short term. However, the broad pessimism surrounding the UK’s economic growth and political/Brexit jitters can weigh on the cable. Elsewhere, the return of the risk-off mood keeps the US dollar on the front foot ahead of Friday’s speech from Fed Chair Powell.

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