Central Banks step forward, currencies feel the impact – Market Overview

Central Banks step forward, currencies feel the impact – Market Overview

Fed’s position on maintaining its current expansionary monetary policy, ruling out any inflationary risk for the economy, seems to affect the investors’ risk sentiment positively.

For the moment, both European and U.S. stock markets continue their slight upward trend. Treasury Bond Yields stabilize, with the Tnote10 falling below the 1.60% level, at approx. 1.56%.

The European Central Bank also insists that its asset purchase program does not have a planned date for reducing purchases, as stated today by Governing Council members.

On the other hand, U.K.’s central bank is considering a reduction of accommodative monetary policy and their Q.E. program due to the fast recovery of the British economy. This appears to have a positive effect on the GBP. U.K.’ currency continues to gain territory against its main counterparts, and especially against the U.S. Dollar due to expectations of low-interest rates for a more extended period in the United States.

Impact on the Forex market.

The GBP/USD pair resumes its uptrend, which began last year's quarter and is currently approaching the critical resistance level at 1.4230.

Above this area, it would find resistance at 1.4360, a pivot area that could open the way to a greater recovery of the British pound if overcome.

The New Zealand dollar behaves in the same way. The Central Bank of New Zealand issued a more hawkish statement due to the fast economic recovery. Additionally, it forecasted the rise of rates for the second half of next year. Although the central bank has made it clear that these forecasts do not represent "forward guidance" for the market, it wants to withdraw monetary stimuli soon. A large part of analysts started to make predictions regarding this topic.

The result of these statements turned out positive for the New Zealand dollar. The NZD/USD pair surged after the central bank meeting, currently approaching the resistance level around 0.7300.

It is important to note that the New Zealand Central Bank has not made any statements against the strength of its currency at its current levels. However, its exchange rate policy tries to avoid an excessive strengthening of the kiwi through statements against, which is known as a verbal intervention. Above the 0.7300 zone it could work its way to the next resistance level between 0.7430 and 0.7450.

Sources: Bloomberg, reuters.com.

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