The US Dollar Index has continued to rally after marking a short-term double bottom last week. The disconnect with the tight correlation between risk appetite and dollar weakness has put an emphasis on the importance of interest rate differentials. The BOE's announcement to increase quantitative easing followed by a stronger-than-expected non-farm payrolls report has enabled the the interest rate differential between 10-year (UK ) Gilts and 10-year (US) Treasuries to shrink from a 32 basis point advantage to a +11 differential. The GBP/USD's weakness highlights bearish MACD divergence and has triggered the latest probe of the key 50-day moving average. A sustained loss of 1.6430 (50-day MA) exposes the 1.6000 region and will signal a medium-term shift in trend. Meanwhile, the DXY and EUR/USD are approaching their 50-day MA's and should be tested if the Cable continues to retreat.
