US DOLLAR SNAPS BACK AFTER FED DECISION

The US dollar rebounded sharply on Thursday in belated response to the Federal Reserve’s decision to raise interest rates. This, in turn, put downward pressure on the euro, which reversed course after earlier gains.

The US dollar index, an exchange weighted average of the greenback against a basket of six currencies, advanced 0.4% to 97.31. The gains came less than 24 hours after the Federal Reserve raised interest rates by a quarter point to 1.25% and maintained its forecast for one more rate hike in 2017.

Not only did the Fed hike interest rates on Wednesday, it also outlined a tentative plan for normalizing monetary policy later this year. This included shrinking the balance sheet, which swelled to $4.5 trillion in the wake of the financial crisis.

In other monetary policy news, the Bank of England (BOE) kept interest rates policy on hold on Thursday, as expected, although three officials called for a rate hike. Analysts expected only one member of the Monetary Policy Committee (MPC) to vote in favour of hiking rates.

The BOE is under growing pressure to act as consumer prices surged to nearly four-year highs last month.

In economic data, UK retail sales rose much less than expected last month, a sign that rising consumer prices were impacting retail spending. Receipts at retail stores rose 0.9%, well below forecasts calling for 1.7%, the Office for National Statistics reported Thursday. Excluding fuel, sales dropped 1.6%. That was much bigger than the 0.8% decline forecast by economists.

Meanwhile, the European Commission’s statistical agency said the euro area trade surplus narrowed much more than expected in April. In seasonally adjusted terms, the surplus fell to €19.6 billion from €23.1 billion, official data showed.

A stronger dollar sent commodity prices plunging on Thursday, with gold and silver declining more than 1%. Oil prices continued to plumb new lows in the wake of US inventory data showing a large rise in commercial crude stocks.

EUR/USD

The euro was half a percent against the dollar at the start of New York trading, with the EUR/USD exchange rate hovering around 1.1164. The pair is testing a support level in the 1.1165 region. A drop below this level would expose 1.1100. On the upside, immediate resistance is located at 1.1217, followed by 1.1280.

GBP/USD

The British pound was one of the few currencies to get an upper hand on the dollar Thursday, with the GBP/USD adding 0.2% to 1.2777. The pair faces immediate resistance at the 1.28 level, followed by 1.2818, which is the high from 14 June.

WTI Oil

The oil price collapse intensified this week, with US West Texas Intermediate (WTI) hitting seven-month lows. The downtrend continued on Thursday, with prices bottoming out at $44.38. Traders should expect to see more volatility in the oil market as the week draws to a close. The outlook remains extremely bearish after breaking below last month’s swing low.