Forex Market Review – Euro bounce driven by hopes of Fed stimulus

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Euro advanced against the dollar during European trading hours, lifted by hopes that the Fed will adopt new stimulus measures to boost the world’s largest economy. This would be positive for risk currencies like the euro. EURUSD opened the European session at 1.2677 and rose to 1.2718. Euro was further boosted after reports that Greece has finally formed a government, made up of a collation of three parties that are all pro-bailout.

 

However, gains in the euro are expected to be short-lived once the Fed decision is out of the way later today. Also, if the Fed decision is disappointing, then the single currency will tumble.

 

Sterling rose to a one-month high mainly driven by a weaker dollar ahead of more easing by the Federal Reserve. GBPUSD hit a high of 1.5776, jumping from an earlier session low of 1.5651 when the pound fell in a knee-jerk reaction after the Bank of England minutes were released and UK jobs data show unemployment is still high. The BOE minutes showed that policy makers are on the verge of more quantitative easing in the UK.

 

Yen was flat on the day against the euro after EURJPY rose back up in the European return erasing Asian session losses, to climb to a high of 100.48 yen. Dollar was little changed against yen, as USDJPY made small moves from 78.85 to 79.03.

 

The Australian dollar  rose to a six-week high against a weaker greenback. AUDUSD hit   1.0209 in European trading as investors bet more Fed stimulus would boost growth-linked currencies like the aussie.