GBP USD Continues to Mount Strong Gains versus the Dollar

The U.S. Dollar is trading mostly weaker at the midsession after erasing early session gains.

The U.S. Dollar is trading mostly weaker at the midsession after erasing early session gains. The inability to break the U.S. equity markets is renewing interest in higher risk currencies.

Early this morning the Bank of England voted to leave its benchmark interest rate unchanged at 0.50%. In addition, no changes were made to its quantitative easing program. The big concern for traders was whether the BoE would reduce the interest rate it pays on reserve bank deposits. The BoE decided to leave this rate unchanged. The positive developments from the meeting are helping to boost the GBP USD at the midsession.

Firm U.S. stock markets and a higher crude oil trade are helping to support the EUR USD. This market is rapidly approaching a major retracement level of the break from the all-time high at 1.6039. This .618 price is at 1.4622. A break back under 1.4184 will indicate weakness.

The USD CAD is trading better at the midsession as traders ignore the strength in the stock and energy markets. Technical factors indicate that traders are shying away from the long side of the Canadian Dollar at current price levels. Traders are also heeding a warning from the Bank of Canada from last month that expressed concern that a high priced currency will damage the economic recovery.

The NZD USD traded weaker overnight after the Reserve Bank of New Zealand voted to leave interest rates unchanged at 2.5% and also warned that further rate cuts are possible because of the “patchy recovery” taking place. The firmer equity markets, however, helped turn this market around and erase earlier losses.

The RBNZ now believes that additional stimulus may be needed to fight rising unemployment. News that exports fell by the most in 58 years was evidence that the rapid rise in the currency is hurting foreign demand. This could limit the economic recovery.

News that Australian employers cut almost twice as many jobs as economists forecast is helping to limit gains in the AUD USD overnight. This bearish news comes on top of a report earlier in the week that Aussie retail sales fell. Traders are cutting long positions now that it looks like the Reserve Bank of Australia may postpone its next rate hike from October to December. A surge in the equity markets could trigger a flight to higher yielding currencies which could give the Aussie a boost into the close.