FX Midweek Outlook 2 Feb 2023

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All eyes were on the FOMC statement last night.

The Fed announced a 25bps rate hike as expected, along with continuous hints of hawkishness. FOMC members also said that anticipation of further rate hikes is appropriate.

Despite the strong bullish stance of the Fed, the markets did not believe in them. Instead, the US dollar sold off heavily against its major peers.


Up Next

Later today we will be looking at the BOE rates decision with a consensus of a 50bps hike, as well as the EUR main refinancing rate with an expected 50bps hike.

On Friday, NFP will take place as usual.

GBPUSD

GBPUSD M30

Sterling shot off against the dollar for as much as 90 pips in the 30 minutes following the event and continued to move higher into the early Asia session. The rally also coincides with a bounce from the 1.23000 key support level where we witness multiple rejections recently. We do also, however, faced with a tough resistance near the 1.2420 area which the pair may test shortly given the strong momentum that it currently has.  

EURUSD Daily

The same price action can be observed on the fiber with the pair advancing by as much as 120 pips in the hours following the announcement. By maintaining a bullish market structure ie: higher lows and higher highs with the latest rally, EURUSD is poised to test the next resistance near the 1.1700 level.

The question then becomes- why did the dollar sell off when the FOMC members gave bullish remarks and kept the door for further hikes open? Was it due to a slowdown in rate hikes by the FOMC ie: 75bps > 50bps > 25bps in their previous meetings?

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Ru Yi 
Financial Market Analyst


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