Saxo Bank

Yesterday, EURUSD fell to the lowest in three weeks on back of speculation that the FOMC statement tonight will be slightly hawkish. GBP-crosses traded higher on back of BoE rate speculation.

MAJOR HEADLINES – PREVIOUS SESSION
USD

Markets awaits the FOMC decision tonight and are quite range bound as the trigger gets tightened, waiting for the rate outcome and more importantly, the accompanying statement from the Federal Reserve.  As we haven’t seen any important data releases this week, markets have been influenced by technical trading and of course on speculative trades, positioning for the Fed statement. We as well as market consensus, expect an unchanged rate tonight at 5.25 pct. and that the statement will contain continued focus on elevated inflation and slowing growth which also were reflected in the Q1 figures, where growth was lower than expected and inflation higher than consensus. This scenario is characterized as stagflation lite. For the EURUSD we are sellers below the lows from yesterday at 1.3518 and if the Fed comes out more dovish than expected, we will buy the break of 1.3620. The last solution will also technically put the EURUSD back into the bull-trend, targeting recent highs at 1.3680.

GBP

The sterling has strengthened today on back of speculation that the Bank of England will hike 50 bp to 5.75 pct. tomorrow, above the 25bp consensus in the market. If they surprise the market (as they did in January), GBPUSD will definately be above 2.00 at the end of tomorrow. The reason for a 50bp hike would be to curb inflation and get an immediate impact instead of gradually raising the rates. Market consensus, as well as what we expect, is a 25bp increase. This is also indicated by the interest futures market, where the 3 month contract is trading a 5.75 pct. , indicating that the BoE will raise rates gradually.