May UK Retail sales came slightly worse than projections, following strong gains in April. However, like the United States, UK consumers boosted consumption of services that became available after economy reopening by cutting spending for retail goods. The data had little impact on the pound as FX markets appears to be pricing in implications of the June Fed meeting.

“Instead of a thousand words” in the official communique or Jeremy Powell's speech to signal the move to a tightening cycle, the Fed simply raised its GDP and inflation forecasts. The dot plot also showed that overwhelming majority of central bank policy architects see the interest rate at a higher level than it is now in 2023. This data was enough to predict a transition to the QE tapering at the end of summer.

On Friday, the dollar stalls near 92 points resistance level, enjoying its highest level since mid-April. The USD gains are broad. Trade weighted exchange rate of the US currency is up 1.5% this week, commodity currencies from the G10 sank 2.5% on average against USD. The factor of China's intervention in the commodity market (price control) joined the Fed's policy, which hit the currencies of countries expressing high sensitivity to price swings in commodities.

Nevertheless, the rally of US currency finds much less support from the Treasury market on Friday. The movements in yields during and after the Fed meeting are strange. Yields on bonds on the horizon of 5-30 years after the initial reaction to the Fed, during which they rose sharply, erased gains completely on Friday:

It’s also possible that the downside reaction in long-term bond yields could be market perception that the Fed signaled about policy tightening too early and now risks to slow down expansion because of that. In other words, markets could be pricing in a policy error from the Fed.

Further prospects for the upward USD move will depend on the trajectory of yields. If their rally resumes, it will be much easier to see US currency gains as well.

The Fed move on Wednesday was good news for the ECB, as it definitely helped to curb appreciation of the euro. Trade-weighted exchange rate of the euro fell by 0.5% to the lowest level since July 2020. The ECB chief economist added fuel to the fire saying that even in September, the ECB may not have enough data to move towards tightening. Divergence of ECB and Fed policies unexpectedly changes its sign and now the markets expect the US Central Bank to move to tighten credit conditions earlier.

In the short term, the EURUSD growth attempt is likely to encounter resistance in the 1.1950-1.1980 area. Next week, the target for the pair will probably be the level of 1.1835 and then 1.17 closer to mid-summer.

The next week may also be vulnerable period for the GBPUSD. Despite the fact that the pound copes better with the onslaught of USD compared to the euro, thanks to the hawkish position of the Bank of England, the risk of worsening trade or political spat with the EU could increase pressure on the currency. The target for the pair is 1.38-1.3810 in the next trading week.