Dollar retreats on policy shift at Fed, cable eyed ahead of MPC minutes
April 19th - The dollar spent much of yesterday’s session under pressure as traders correctly predicted that the FOMC meeting minutes would show that a slowing in US monetary policy appears to be imminent despite the associated inflationary pressures arising from higher oil prices. As a result the greenback has staged a retreat against many of the major currencies although the run of speculation meant that the depreciation was seen through the whole session as opposed to just the period surrounding the data. Today’s US CPI readings will however be closely watched as any significant jumps here may raise some questions as to just how quickly the hawkish policy can come to an end, whilst more specifically against the Pound, any suggestion that the Bank of England may be close to adopting a more dovish stance could also see cable continue its recent retreat from levels not seen since January 2006. Highs around 1.7845 were tested overnight but with the prospect of falling yields on Sterling deposits, it’s little surprise that many consider the Pound overbought at these levels and a retreat back towards 1.78 has followed. With little else on the UK economic calendar, the Bank meeting minutes will likely prove instrumental in directing where cable goes next, at least in the short term expect further volatility in GBP/USD.
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