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USD loses momentum after impressive Monday

Mixed messages coming from US Federal Reserve undermined the strength the USD displayed yesterday. Cleveland Federal Reserve President Loretta Mester said that, while she doesn’t have a problem with the Fed cutting the size of its interest rate hikes, she will need to see further progress on inflation reduction before she is ready to advocate no interest rate hikes at all. The President and CEO of the San Francisco Fed, Mary C. Daly, was a little more dovish, warning about the lagging effect of interest rate hikes. So, having dropped to $1.1785 yesterday, the GBPUSD rate is back up to $1.1855 this morning. That is still a cent below the highs we saw on Friday but GBP sellers will be happier. The EURUSD rate followed a similar path, dropping from Friday’s test of $1.04 to $1.0225 before bouncing to this morning’s $1.0275. Other than speeches from European Central Bank and US Federal Reserve members, there is very little on today’s horizon to drive volatility in these markets.

NZD strengthens ahead of the expected largest rate hike on record

It is likely that the meeting the Reserve Bank of New Zealand Holds overnight tonight, (UK time) will be the last for three months. with New Zealand’s inflation level running at 7.2%, there is a very strong chance the RBNZ will hike their base rate by an unprecedented 75 basis points before the UK is open for business tomorrow morning. The foreign exchange markets are ahead of this as evidenced by the strength of the New Zealand dollar. The GBPNZD rate peaked at NZD 1.9470 on Thursday but is down to NZD 1.9295 this morning and looks ready to fall further. We have to suspect this rate will continue southward if the RBNZ delivers on the market expectations but, if they choose a more cautious approach, a swift reversal is very likely.

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