Dollar gains slightly as traders look beyond tomorrows FOMC. ECB Board member Bini Smaghi said Euro zone interest rates are still “very accommodating” and more adjustments should be forex market update in coming months.
On Sunday, Lebanon rejected the outright the Franco-American draft of a UN resolution to end Israel’s war with Hizbollah. The Yen continued to feel the effects of having the lowest interest rate in the G7 and being the funding currency of choice for most carry trades. With a wealth of figures due out this week it will be interesting to see if this trend persists. However, it’s yet to be seen if the market is currently trading on economic health or just differentials. The GBP has continued to out perform the market. After the surprise BoE rate hike, traders will be very interested in reading the UK Inflation Report on the 9th. This report will provide an early guide to the new, proactive MPC thought process.
BoE comfort levels and will support further rate increases. Scenario 1: has the highest probability and is the outcome most market participants expect. While providing the USD with a short-term bounce, lingering prospects of a pause will reinstate a USD negative bias. Scenario 3: perhaps the most interesting scenario.