The US dollar maintains its advantage after the Fed’s September rate hike. Market participants are already pricing in the likelihood of another regulatory step in October, as inflationary pressure remains elevated. Expectations of further policy tightening keep the dollar index near a seven-week high and limit the recovery of EUR/USD.
The euro receives some support from the ECB’s recent rate hike and falling oil prices. Cheaper energy reduces inflationary and economic risks for the eurozone, but this is not yet enough for sustainable strengthening of the single currency. Political uncertainty in Germany and budget issues in France remain additional restraining factors.
Within the current session, the difference in expectations regarding future regulatory actions remains in favor of the dollar. The upcoming speech by Fed representatives could strengthen this factor if they confirm the need to continue fighting inflation. For now, US monetary policy appears to be a more convincing driver, with priority remaining for a decline in EUR/USD.
Trading idea: SELL 1.1470, SL 1.1500, TP 1.1395
GBPUSD: SELL 1.3370, SL 1.3400, TP 1.3290
The pound remains near seven-week lows against the dollar following central bank decisions. The Bank of England kept rates unchanged, while the Federal Reserve raised them and signaled further tightening. This divergence supports the US currency, despite expectations of a potential UK rate hike later this year.
The pound’s position is slightly bolstered by strong retail sales data and growth in the British economy in July. Falling oil prices also reduce the risk of renewed imported inflation acceleration. However, these factors could simultaneously weaken the need for an urgent rate hike by the Bank of England, so their impact on the British currency remains ambiguous.
The main driver of the current session is expectations of further Fed action, while UK statistics do not provide sufficient grounds for independent sterling strength. Before the release of September business activity indices, the market lacks new confirmations of the resilience of the UK economy. With demand for the dollar remaining the baseline scenario, the base case for GBP/USD remains downside.
Trading idea: SELL 1.3370, SL 1.3400, TP 1.3290
USDJPY: BUY 157.35, SL 156.95, TP 158.35
The yen remains under pressure, although the Bank of Japan raised its rate to 1.25%. The decision was accompanied by disagreements among regulators and did not give the market confidence in a rapid continuation of tightening policy. As a result, traders once again focused on the wide interest rate differential between the US and Japan, supporting USD/JPY.
The US dollar is being strengthened by expectations of another Fed rate hike following the September decision. The probability of a new move in October has already increased, as the regulator continues to focus primarily on inflation risks. Even the decline in US Treasury yields has not yet changed the overall advantage of the dollar over the yen in carry trades.
The upside for the pair is limited by the risk of action from Japanese authorities: recent checks on currency quotes indicate heightened attention to yen weakness. However, without confirmed intervention, this factor rather dampens the pace of movement than reversing it. With the divergence in Fed and BoJ policies remaining, the main scenario remains moderate growth for USD/JPY.
