Forex market overview (USD and GBP)

The currency market has been recording some volatility today as traders reacted to the release of a number of economic data in the US and to the interest rate decision in the UK. More input is expected tomorrow for the UK and France.

The US dollar index continued to trade in a range overall for the last few weeks, although with some volatility with various factors such as changes in monetary policy and banking and debt ceiling concerns affecting expectations.

Concerns around the debt ceiling debate could fuel some risk aversion and uncertainty among traders. While the debt limit looms over the horizon, traders could increasingly turn their attention toward safe assets as a hedge against uncertainty.

Over the short term, the flight to safety could help keep the dollar abreast in particular as banking sector fears could continue to re-emerge.

However, the dollar could see some weakness against major European currencies over the medium term as traders expect the Federal Reserve to pause interest rate hikes while the ECB and the BoE continue hiking interest rates.

US inflation figures remained roughly near expectations but slightly weaker than estimates, supporting expectations of less-needed actions on monetary policy.

On another note, the British pound was volatile as traders were monitoring the decision of the Bank of England on interest rates. The central bank decided on raising its interest rates by 25 basis points in line with expectations.

However, UK inflation is expected to fall more slowly, which could strengthen the potential for higher rates and provide support for the British currency. The improved outlook for the British economy could also help maintain an uptrend for the pound. However, traders could remain cautious on this matter ahead of the GDP figures publication