As expected, the Federal Reserve last night left policy unchanged, However in the statement, they raised their forecasts of inflation with prospects of interest rate rises as early as next year. Inflation projections this year for PCE is now set at 3.4% with core at 3%. Economic growth estimate also rises to 7% from 6.5%. Interest rate forecasts now sees the possibility of one hike in 2022 and two in 2023, As a result, US treasury yields rose and the US Dollar rallied with gains of approximately 1% across a broad range of major currencies. The longer-term Dollar down trend is now in question having seen the Euro and Sterling trade below key support levels.

News following the Federal Reserve statement, saw Sterling trade at a monthly low against the Dollar, now 1 cent lower and testing the $1.4000 zone, major support is now seen at $1.3900. Sterling however is holding at weekly highs against the Euro as investors remain confident of an economic recovery in the UK later this year. Investor bias is still to buy Sterling on any signs of weakness over the Euro. A clear break of EUR 1.1700 would suggest further gains could be possible. UK retail sales data for May will be released tomorrow.

The turnaround in Dollar sentiment is likely to be good news for the ECB having voiced only last week concerns over the exchange rate. Despite the turnaround in Dollar sentiment following last night’s news, the Euro more or less, fell 1 cent pretty much immediately and is now trading below 1.2000, a two-month low. Eurozone consumer prices for May are released at 10am this morning.