Dovish FOMC Triggers USD-weakness Across the Board
The Federal Reserve decided to keep the leading interest rates unchanged as expected, but communicated that they only see two additional rate hikes this year, whereas some market players had been speculating that a third would be justified. We were not of that belief and were bang on with our thoughts from yesterday that additional US Dollar weakness would be seen. In addition to the two Fed hikes, FOMC Chairman Yellen said that the global growth remains threat to domestic economy and that the outlook economy is not “balanced” yet. US Yields plunged and while stocks rocketed on the news – S&P500 is now within 100 points of the all-time highs printed last year and commodities also got a boost. Oil is closing in on the 40$/barrel and in precious metals, Gold spot gained almost 30$ nearly recovering the losses of the 3 previous days.
Overnight, the risk rally continued, less Japan as a weaker-than-expected Trade Balance disappointed the export-related economy, and this morning we have seen Europe on the retreat, mainly due to the stronger EUR, which makes terms less favourable for exporters. EUR/USD has in time of writing just broken the 1.13 level and we will not rule out a re-test of the 2016 highs printed in February at 1.1375 . Today, we have the Euro zone CPI figures from February, which will be interesting in light of the comments from Draghi last week. Yearly Headline inflation is expected to show a drop of 0.2%, whereas the monthly figure is expected to increase 0.1%. Any positive surprises will benefit the Euro.
Later today, at 13CET, the BoE will hit the wires with the MPC interest decision and Total QE. We don’t expect any changes in the leading interest rates and are expecting unanimous decisions on QE. However, we will be watching the minutes from the last meeting with great interest, especially about the dove member Gertjan Vlieghe’s input and if there is anything which can change the balance within the Committee. GBP/USD also benefited from the weaker US Dollar and has broken the 50-DMA with next resistance at 1.4350 (61.8% Fibo retracement in the 2016 wave) before the 1.44-figure and then March highs at 1.4437.
From the US, the weekly claims will be released along with the Philly Fed data form March. This is expected to decline 1.7 vs. a decline of 2.8 last month. We don’t expect these figures to have much impact today, but the Philly Fed should not be missed as we will get an indication of the developments. The index has been negative for the past three months in a row.
For ZAR-traders, the SA Reserve Bank will release rates at 14CET, which are expected to come out unchanged at 6.75%.
Get market updates on your email by subscribing to T1 MarketScope weekly newsletter