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Originally Posted by bhale
Conventional wisdom says that a when a central bank raise interest rates it is bullish for that currency in the forex market, and vice versa when it is lowered. So why is the euro and pound up 100+ pips after Fed raises interest rates. It seems that for the past year or so, no matter what the report and whether it is dollar positive or negative, inititla reaction is bad for the dollar.
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The expected .25 hike was already well priced in, with an 80% chance of a further hike in August. The Fed already said before that any further tightening would be data dependent, their view now is that 'slowing economic growth' should help limit inflation, ie there is a chance they will pause or that this is the end of the cycle, this was immediatly reflected by a reduction to a 50/50 chance of an August hike in the interest rate futures market.
In my opinion the dollar was being supported by a very tenuous thread, interest rates and yield advantage. If/when that thread gives way it's all downhill. Traders are a fickle bunch, they turn on a dime, literally!
Just my
If you're going to follow data and trade on it then read up and learn what it actually means and how the market is likely to interpret it and react to it.
Mick