Forex Today: USD clings to gains in Fed aftermath, focus shifts BoE

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Here is what you need to know on Thursday, February 1:

The US Dollar stays resilient against its major rivals early Thursday after fluctuating wildly during the Federal Reserve (Fed) event on Wednesday. The Bank of England (BoE) will announce monetary policy decisions later in the day. Eurostat will publish the inflation report for January and the US economic docket will feature weekly Initial Jobless Claims, Unit Labor Costs and ISM Manufacturing PMI data.

The Fed left the interest rate unchanged at 5.25%-5.5% following the first monetary policy meeting of the year, as expected. In its policy statement, the Fed dropped the language about the willingness to tighten the policy further if needed but said that it does not expect it will be appropriate to reduce rates until there is greater confidence inflation is moving sustainably toward 2%.

During the post-meeting press conference, Fed Chairman Jerome Powell noted that almost everyone on the Committee believes it will be appropriate to reduce rates and added that an unexpected weakening in the labor market could make them start reducing rates sooner. When asked about the possibility of a rate reduction at the next meeting, “based on the meeting today, I don’t think likely we will have a rate cut in March,” he responded. After dropping below 103.00, the USD Index regained its traction and climbed above 103.50. Meanwhile, Wall Street’s main indexes closed deep in negative territory, while the benchmark 10-year US Treasury bond yield settled below 4%. Early Thursday, US stock index futures trade marginally higher on the day and the USD Index clings to modest gains above 103.60.

Inflation in the Euro area, as measured by the change in the Harmonized Index of Consumer Prices (HICP), is forecast to edge lower to 2.8% on a yearly basis in January from 2.9% in December. After closing in negative territory on Wednesday, EUR/USD struggles to stage a rebound and trades near 1.0800 early Thursday.

The BoE is forecast to hold the policy rate unchanged at 5.25%. Market participant will pay close attention to revised macroeconomic projections and Governor Andrew Bailey’s comments at the press conference. GBP/USD registered small losses on Wednesday and was last seen trading modestly lower on the day below 1.2700.

UK BoE Decision Preview: Interest rates to remain unchanged as focus shifts to path toward cuts.

USD/JPY declined toward 146.00 in the American session on Wednesday but managed to erase a large portion of its daily losses before closing near 147.00. Early Thursday, the pair stays slightly below this level. Foreign Bond Investment in Japan saw inflows of ¥382.9 billion for the week ended January 26, up from the previous week’s outflows of ¥43.5 billion (revised up from ¥-48.0 billion), Japan’s Ministry of Finance reported on Thursday.

After spiking to a two-week high near $2,060, Gold lost its traction and retreated below $2,050. With the 10-year US yield struggling to reclaim 4%, XAU/USD holds steady above $2,040 early Thursday.

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