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The published minutes of the Fed meeting in January showed that the regulator is ready to continue the process of smoothly raising interest rates, as well as to strengthen if inflationary pressure continues.
Initially, the US dollar reacted negatively to the words about the slow or smooth increase in interest rates. It fell sharply against the single European currency and other major currencies, but then resumed growth as the Central Bank stated its inclination to increase the number of rate hikes in case the inflation increased as well.
Previously, the market tone began to ask government bonds of the US Treasury and turned down the supporting profitability. Hence, the profitability of the benchmark of 10-year Treasuries currently jumped to the level of 2.945%, adding 2.16%. On this wave, the US stock indices turned down after the growth at the opening of the trade, which ended the session on the negative territory.
Assessing the outlook for the foreign exchange market, it can be noted that the strengthening of the US dollar may continue with the support of higher yields of US government bonds, along with high expectations for interest rates and the possible weakening of expectations that the Bank of England, the ECB and the Central Bank of Japan will tighten their monetary rates.
The UK employment data was unveiled on Wednesday, showing an unexpected increase in unemployment from 4.3% to 4.4%. This kind of news is unlikely to become a supporting factor for the sterling pound. At the same time, the minutes of ECB's meeting on monetary policy for January will be presented today. If it indicates the regulator's concern about the weakness of inflationary pressures, this could be the reason why the ECB will continue the European economic support program in September. This means that the support received by the euro in the recent months may run low and it will remain under pressure.
Forecast of the day:
The EUR/USD currency pair is trading below the level of 1.2300 in anticipation of the publication of the January ECB Monetary Policy Report. It can be assumed that if the content of the minutes reveals the bank's fears of the weak inflationary pressures, the pair may fall to the level of 1.2200.
The GBP/USD currency pair is below the 1.3960 level. It may continue to decline against the backdrop of the possible weakening of the euro in the currency markets. It is expected that on this wave and after the release of UK GDP data, the pair will fall to 1.3835.
* The presented market analysis is informative and does not constitute a guide to the transaction.
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