GOVERNOR CARNEY LEAVES RATES UNCHANGED BUT BECOMES MORE HAWKISH

Today, the pound rose to the highest level since Monday after the Monetary Policy Committee (MPC) completed its two-day meeting leaving interest rates unchanged, as was expected. What was not expected was the MPC’s hawkish policy statement.

In the statement, the committee stated that interest rates could rise earlier than expected, leading to the surge in the pound. In addition, the committee agreed to continue the stimulus package and set an inflation target of two percent. They also shared the view that the economy will continue to do well but cautioned that higher inflation would be inevitable in the short term.

As of writing, the UK pound is up 1% against the US dollar and is trading at 1.4015.

Another major development today was from the United States. Yesterday, Senate leaders agreed on a two-year government-spending plan, which will boost federal spending by almost $300 billion in two years. This plan came just a month after Trump signed the tax reform package. The signing of the deal, coupled with positive economic data led the dollar higher against major currencies like the euro and yen. Nonetheless, the surging pound weighed down the dollar index.

In New Zealand, the Reserve Bank left interest rates unchanged at 1.75% and warned that the current surge in volatility was a sign that inflation was at play. Following the release, the kiwi fell to 0.7176, which is the lowest level since January.

EUR/USD

The dollar continued to advance against the euro, rising to the highest level since 22 January. This rise is associated with the positive jobs data released on Friday. The streak of positive data continued today when the weekly jobless claims of 221K beat analysts’ estimates of 232K. Using the hourly chart shown below, the chart appears to be forming an inverted cup and handle pattern. This means that in the next few trading sessions, the pair could struggle to find direction. As further evidence, the Relative Strength Index, which indicates when assets are overbought and oversold, is currently at the neutral level of 49.

GBP/USD

The cable shot higher after the BoE increased chances of sooner rate hikes. Their policy statement was similar to the one they issued in September, a month before they hiked interest rates. The pair is currently attempting to recover some of the losses it had accumulated in the past few days. At the time of writing, the pair had managed to pass the critical 38.2% Fibonacci level. Fueled by hawkish statements from the BoE, the pound could continue its upward trend against the dollar.

NZD/USD

The New Zealand dollar lost ground against the dollar following the interest rates decision by the RBNZ. The bank’s governor warned about the current volatility in the equities market but remained upbeat about the domestic market. The country is nearing full employment and the output gap, which measures the economic output against its maximum potential, was almost zero. As evidenced by the Bollinger Bands pattern, and the fact that the pair seems to have found support, there is a likelihood that it could recover some of its losses.