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US Dollar Slides as Policy Pivots Boost British Pound and Dax 40. Higher GBP/USD?

US Dollar Slides as Policy Pivots Boost British Pound and Dax 40. Higher GBP/USD?

Daniel McCarthy, Strategist

US Dollar, GBP/USD, British Pound, BoE, ECB, DAX 40, NZD/USD - Talking Points

  • The US Dollar softened today as policy pivots and corrections allay fears
  • Equity markets revived hopes of better days with the DAX 40 set to add to gains
  • The UK government and BoE have made policy changes that has lifted GBP/USD

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The US Dollar weakened across the board while the DAX 40 has been buoyed by market sentiment that has seen growth and commodity linked currencies gain.

In an interview with The Financial Times (FT), the European Central Bank’s (ECB) Francois Villeroy de Galhau said that further tightening may slow once the deposit rate gets to 2%.

Additionally, natural gas prices have slid lower on favourable weather conditions and the build-up of inventory in the US and EU being ahead of schedule for the upcoming northern winter. Crude oil is steady with the WTI futures contract above US$ 85 bbl.

Equity futures are pointing toward European bourses being all set for another positive day with the DAX 40 looking at potential gains of over 1%.

Risk appetite was already healthily increasing in the fallout from the about face in UK fiscal policy that the new Chancellor of the Exchequer Jeremy Hunt announced yesterday.

The planned tax cuts have all but been abandoned and this allayed bond market fears with the yield on 30-year Gilts heading back below 4.40%.

GBP/USD is back to where it was prior to the mini budget as it approaches 1.1400. Further adding to the positive mood, the FT has reported that the Bank of England may delay quantitative tightening (QT).

US equities finished their day deep in the green with a number of names announcing positive earnings. The Bank of America announced good results, highlighting that consumer spending remains robust, something that may prick the ear of the Fed. Futures are indicating another uptick to start the North American cash session.

The release of a series of significant Chinese data that was due on Tuesday has been delayed to an unknown time. The Communist Party Congress has been cited as the reason for the delays.

The New Zealand Dollar rallied in the aftermath of a higher than forecasted CPI leading to increased bets on further jumbo hikes from the RBNZ.

The full economic calendar can be viewed here.

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GBP/USD TECHNICAL ANALYSIS

GBP/USD is bumping up against break point resistance in the 1.1405 – 1.1414 area. A move above there might see a test of potential resistance at 1.1496.

The latest rally has overcome the 10- and 21-day simple moving average (SMA) and this might suggest that near term bullish momentum may unfold.

Support may lie at the prior lows of 1.0924 and 1.0354.

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Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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