FX.co ★ There could be further aggressive policies from central banks

Bank of Canada's decision

The Bank of Canada's decision to resume raising interest rates shook global markets and highlighted the challenging task faced by other central banks that are considering a pause. Governor Tiff Macklem announced that the bank is returning to rate hikes after a pause declared in January, when Canada's economy unexpectedly showed strength. Considering that one of the world's leading central banks already experienced setbacks, it is highly likely that the Federal Reserve will have to raise rates further in June before announcing a real pause in the cycle. This situation resulted in dollar maintaining its dominance against risk assets.

Bond market

A widespread sell-off was seen in the bond market, as investors continue to anticipate further aggressive policies from central banks. Reportedly, the yield on shorter-term Treasury bonds is nearing its peak since March this year, while their Australian counterparts have reached levels not seen in over a decade. Experts note that the US Treasury bond market has already priced in the potential tightening measures by the Federal Reserve in July, which will mark the final rate hike in 2023.

Strengthening ties

UK Prime Minister Rishi Sunak said the main goal of his visit to the United States is to strengthen economic ties and bring them to the level of military cooperation. He aims to attract new investments to the UK and alleviate trade frictions, even without negotiations on a free trade agreement that UK leaders sought after the country's exit from the European Union.

Technical outlook

In terms of the forex market, EUR/USD could grow further if the buyers get ahold of 1.0705 and 1.0670. Then, rising beyond 1.0740 will push the quote to 1.0770 and 1.0800, but reaching the latter may be difficult without strong reasons such as good economic data from the eurozone. In the case of a decline around 1.0670, euro will fall to 1.0635 and 1.0595.

GBP/USD could rise if buyers gain control above 1.2460. Only a breakdown of this level will lead to growth towards 1.2498 and a sharper upward surge towards 1.2525. In the event of a decline in the pair, sellers will attempt to regain control around 1.2430, which could lead to a fall to 1.2400 and 1.2370.