Fed’s “Dovish Hike” Rekindles Risk Appetite

Global stocks were catapulted to record highs on Thursday following the Federal Reserve’s “dovish hike” which rekindled investor’s appetite for riskier assets. Asian shares have traded mostly higher today as participants digest the Fed’s caution to future rate increases with the bullish domino uplifting European equities. With risk-on being the new name of the game in the short term, Wall Street may stroll into further gains moving forward.

Although the impressive stock market rally has displayed repeated signs of resilience against political risk and uncertainty this quarter, participants must remain diligent as some fragments of a bear market still linger. A situation in the future where investors start to lose faith over Trump’s pending fiscal stimulus plans could be the start of a steep market selloff.

Dollar punished by Doves

The greenback was exposed to sharp losses on Wednesday after the Federal Reserve signaled a more moderate pace of monetary tightening in 2017 than most investors anticipated. Although U.S. interest rates were increased as widely expected, the cautious tone Yellen struck at the press conference coupled with the static projections on the dot plot has extinguished expectations of four U.S. interest rates increases this year.

Regardless of the sharp dollar selloff, the bullish bias remains intact in the longer term and with “the economy doing well” as Yellen stated buyers may reappear once a support has been established. Technical traders may observe how the dollar index reacts to the physiological 100.00 support which could provide protection for the bulls or simply assist the bears if prices are breached.

Sterling bounces back to life, but for how long? Sterling bulls were back in action on Thursday with the GBP/USD lurching towards 1.2370 following the Bank of England’s unexpectedly hawkish signals on future interest rate increases. Although the monetary policy was left unchanged, the emergence of a lone BoE hawk coupled with concerns of rising inflation simply offered sterling a solid boost. With speculations potentially heightening over other policy makers moving to the hawkish camp following the dissenting vote by Kristin Forbes, the pound could be supported in the short term. Although the Central Bank has raised expectations for economic growth in the first quarter to hit 0.6%, this may be overshadowed by the Brexit developments in the medium to longer term.

While the current gains on the GBP/USD are impressive, it must be kept in mind that this has little to do with a change of sentiment towards sterling but extreme dollar weakness. Technical traders may pay very close attention to how prices react around the 1.2400 regions with weakness below opening a path back down towards 1.2200.

Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

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