FOMC keeps rates unchanged, but policymakers project no hikes this year - USD slumps
We have seen a large sell-off in the USD in the aftermath of the FOMC meeting, and as we noted in the preview, the dot plot - the projections on interest rates - have been the key driver as policymakers at the Fed have revised their forecasts of 2 hikes this year to none. This was the primary focus for the market, though the Fed also revised down its growth forecast for 2019 from 2.3% to 2.1% and also noted that it saw risks to household spending in its statement.
Needless to say, the Fed saw fit to hold rates unchanged today and sees no signal from the data which suggests rates should move either way. However, the interest rate markets are now pricing in a rate cut early next year, so today's communication has spread concerns that the US economic slowdown may warrant loosening of policy later on down the line.
At the press conference, Fed chair Powell insisted that keeping rates on hold was appropriate for the current state of the economy and that the Fed had not 'convincingly achieved the inflation target in a symmetrical way'. As such, the Fed is not worried about inflation at this stage and this has added to the dovish outlook on the Fed decisions.
The response from the USD was pretty strong - and this in spite of USD weakness seen throughout the week so far. EUR/USD moved firmly through the 1.1400 resistance point, going on to print a 1.1450 high which is a key level also as it represents the highs from last month. A move above here could signal a key low below the 1.1200 mark, though there are plenty of risks ahead for the EUR on its own merits.
USD/JPY has also been hit hard, with the spot rate initially testing the 111.00 level, then pushing below to extend towards 110.80 support which was also taken out. We now look to the key 110.30 area and a strong move below here could open up the mid to low 109.00's. This comes in spite of the boost given to stocks, with the S&P 500 back above 2820 again, though not convincingly so as yet.
Cable also got a lift as the spot rate pushed back into the mid 1.3200's. Brexit lies ahead, however, so traders have been fading the highs here.
AUD/USD pushed above 0.7120, but we see plenty of resistance through to the 0.7170 level, while NZD/USD is also struggling above 0.6900.
USD/CAD dropped to the lows seen yesterday, holding these levels to gravitate back towards the 1.3300 level.
Tomorrow will be an interesting day. Volatility is finally picking up?