Forex Today: BoE policy in focus, Hawkish Fed policymakers keep US Dollar firm

Here is what you need to know on Thursday, May 9:

The US Dollar (USD) exhibits strength against its rivals in Thursday’s early London session as Federal Reserve (Fed) policymakers remain convinced about resilient United States economic prospects and lacks confidence over inflation declining to the desired rate of 2%.

On Wednesday, Boston Fed Bank President Susan Collins said the economy needs to cool down for inflation return to 2. Collins said recent upward surprises in price pressures and economic activity suggests that interest rates should remain at their current levels until they get greater confidence that inflation will sustainably return to 2%.

Interest rates by the Fed remaining higher for a longer period is a favorable scenario for the US Dollar and bond yields. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near 105.50. 10-year US Treasury yields jump to 4.51%.

In the Asian trading hours, hawkish guidance on interest rates from Bank of Japan’s (BoJ) Summary of Opinions (SOP) failed to impact strength in the USD/JPY pair. The major looks set to extend its upside towards 156.00. BoJ policymakers flagged upside risks to inflation and discussed possible rate hike scenarios. However, investors see little scope for more hikes amid less confidence over sustained wage growth.

EUR/USD seems feeble near 1.0740. The pair falls on backfoot amid firm US Dollar. The major currency pair is expected to be driven by market sentiment due to absence of top-tier Eurozone economic data.

GBP/USD trades close to weekly low below 1.2500 amid caution ahead of the Bank of England’s (BoE) interest rate decision. The BoE is widely anticipated to keep interest rates steady at 5.25% for the sixth time in a row. Therefore, major focus of investors will be on fresh cues about when it could start reducing interest rates. BoE Deputy Governor Dave Ramsden remained confident over inflation returning to 2% and staying there for next three years. He is expected to join policymaker Swati Dhingra and vote for a rate cut.

Gold price rises to $2,315. The precious metal is broadly sideways in the $2,300-$2,320 range. The downside remains supported due to geopolitical uncertainty while higher bond yields maintain downside pressure.

Gold price gains momentum, investors await US data, Fedspeak for fresh catalyst

AUD/USD remains on backfoot near 0.6570 due to weakness in the Australian Dollar. The antipodean is under pressure as the Reserve Bank of Australia (RBA) doesn’t think that it is necessary to tighten policy further. The RBA could get inflation back to 2% with current level of interest rates.

Australian Dollar edges higher after Chinese import data shows rise in April