British Pound Outperforms Amongst FX Majors, Japanese Yen Gives Back

Even though the U.S. dollar is rallying across the board on Wednesday, the British Pound is the best performing currency relative to its major counterparts, and the exchange rate may continue to hold the broad range carried over from the previous month as price action continues to hold above the December low at 1.5832.  The GBP/USD pulled back from the high (1.6069) following a bigger-than-expected drop in the services PMI, and remains 40pips lower from the open after moving 100% of its daily ATR. As a result, we are likely to see price action hold within the weekly range going into the Asian trade, but we could see a short-term bounce in the pound-dollar as the 30-minute RSI approaches oversold territory. Nevertheless, as the Bank of England is scheduled to announce its interest rate decision at 12:00 GMT tomorrow, we may see price action hold along the 120-SMA at 1.5958 as the central bank is widely anticipated to maintain the benchmark interest rate at the record-low of 0.50%.

The Japanese Yen pared the previous day’s advance and has taken the biggest hit amongst the majors, and we may see the exchange rate maintain the upward trend from the January low (89.13) as the U.S. dollar appears to be losing its popularity as a funding-currency. The USD/JPY crossed above the 20-Day SMA (90.90) to reach a high of 91.11 following a rally in the greenback, and remains nearly 61pips higher on the day after moving 106% of its average true range. However, as the 30-minute RSI climbs into oversold territory, we may see a corrective retracement going into the Asian trade, which could lead the pair to fall back towards the 120-SMA at 90.54. Meanwhile, as the Federal Reserve aims to normalize policy this year, we are likely to see the strong correlation between the U.S. dollar and risk taper off, and fundamental developments are likely to drive price action going forward as market participants speculate the FOMC to start hiking rates in the second-half of the year.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com