The Dollar offered a fairly muted response on Thursday evening despite minutes from November’s Federal Reserve monetary policy meeting cementing expectations of a US rate increase in December.
Almost all policymakers at the Federal Reserve agreed that another rate increase was “likely warranted fairly soon”. However, a few officials expressed uncertainty regarding the timing of such rate increases over the next year. With a couple of participants also voicing concerns over the negative impacts of tariffs and high levels of business debt, the overall tone of the minutes had a dovish touch. A key takeaway from the minutes was how some participants felt that interest rates might currently be near a neutral level, which complemented Powell’s earlier message signalling a potential pause in hikes next year. With the minutes also confirming the Fed adopting a more data-dependent approach to rate hikes, the Dollar will most likely display high levels of sensitivity to economic data moving forward.
In regards to the technical picture, it has been a bearish trading week for the Dollar thanks mostly to dovish remarks from Federal Reserve Chair Jerome Powell. With investors scaling back expectations of higher US interest rates beyond December, the Dollar’s near outlook points for further downside. Sustained weakness under the 97.00 could inspire a move lower towards 96.50.
Pound gripped by no-deal Brexit fears
The Pound is poised to remain heavily depressed and unloved as Brexit related uncertainty and political drama in the UK haunt investor attraction towards the currency.
There is clearly a sheer lack of optimism over Theresa May getting her Brexit deal through parliament and this continues to weigh heavily on the British Pound. With fears set to intensify over the United Kingdom possibly leaving the European Union with no deal in place, the outlook for Sterling points to further downside. Looking at the technical picture, the GBPUSD remains in a downtrend on the daily charts. Technical lagging indicators such as the MACD and 20 Simple Moving Average are in line with the bearish view. Repeated weakness below the 1.2840 resistance level should inspire a decline towards 1.2700.
Commodity spotlight – Gold
Gold has the potential to shine proudly in the near term as Dollar weakness becomes a recurrent market theme.
The price action witnessed this week continues to highlight how the yellow metal’s trajectory remains heavily driven by the Dollar’s performance and speculation around US interest rates. With the Dollar seen weakening as investors scale back rate hike expectations beyond December, the yellow metal has the potential to break above the $1,228 resistance level.