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The dollar Holds Steady as Rates Decline

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The dollar Holds Steady as Rates Decline

US interest rates continue to remain at the bottom of their current range as speculation on increasing rates due to potential tapering has been put off until the middle of 2014. Futures traders are now pricing in the first tightening of rates in 2015, which could reflect a potential slowdown in US economic activity. The rate differentials have moved in favor of the Euro and the Pound as both countries are seeing above trend growth.

The FOMC meeting on Wednesday no longer holds much suspense for the market participants. Given the weak September jobs data, release last week the hangover effect of the impact of the government shutdown, market expectations for tapering are being pushed out to the second quarter of 2014.

The FOMC has no press conference scheduled after this meeting, and so it appears unlikely that the FOMC will yield much information for the markets. The December meeting, however, will have a press conference as well as updated economic projections.

The yield differential which is the difference between each countries interest rates have moved in favor of the Pound and will likely generate further interest in the Sterling over the greenback.

The differential in the 10-year space continues to climb with the currency pair and makes shorting the pound compared to the dollar more expensive.

Sterling continues to press resistance near horizontal trend line resistance at 1.6250. A close above this level would likely lead to a test of resistance near the December 2012 highs at 1.64. Support on the currency pair is seen near the 10-day moving average at 1.6130.

Momentum on the currency pair is flat with the MACD (moving average convergence divergence) index printing near zero, as the spread and the 9-day moving average of the spread have the same value. The RSI (relative strength index ) is printing near 59, which is on the upper end of the neutral range.

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