The US dollar was broadly stronger after the Fed monetary report release. The FOMC projections revealed that expectations for a rate hike in 2015 remains solid, with 14 FOMC participants projecting a 2015 hike and 2 in 2016 instead of the June release where 13 participants projected a rate hike in 2015 and 3 in 2016. Also, the average projection of the Fed funds rate increased. All that strengthened the greenback yesterday with the US dollar index peaking at 84.77 which is a 14-month high and we do not expect an easy penetration of that cap.
Early on Friday the Scottish referendum outcome strengthened the European currencies because the uncertainty faded. The British pound jumped to 1.6524 against the US dollar recovering from previous losses. The Bank of England is returning to the normal course of its monetary policy and we expect a tightening of the policy in first half of the 2015 as on Tuesday we saw the non-volatile items CPI increasing. The UK Gilt 10 year yield declined 30bps as risk of separation eliminated.
Elsewhere, the Euro against the US dollar recovered to resistance at 1.2928 in yesterday trading but in the last two hours downside bias refreshed. We look forward for the Euro-zone Current Account data but the common currency in general is week. The EURUSD declined since May 7th from 1.3927 to today’s bottom at 1.2835, the lower price limits the potential profits for going short and that is an add up risk also we are near a 2-year support at 1.2772, therefore we might see a corrective move in the longer term. Lastly, the US dollar against the Canadian eased back to support at 1.0924 and we focus today on the Canadian core CPI and Wholesale data.
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