Analyze the US Dollar and the Fed Staff House
Jerome Powell appears to be threading the needle between leaving the door open for further rate hikes while remaining responsive to current banking strains.
The US dollar and the Federal Reserve in brief
- The Fed released its 25 basis point rate in the popular 5.00-5.25% range. In its statement, the FOMC deleted its reference to future interest rate hikes, clearly hinting at a likely pause in June.
- Fed Chairman Powell played down the fireworks during his press conference, though he fermentamente refuses to consider rate cuts so soon.
- The US dollar has rebounded from its lows but remains subdued. EUR/USD traders will now turn their attention to the ECB.
Fed meeting decision
As many expected, the Federal Reserve’s FOMC will opt to raise the interest rate by 25 basis points to the 5.00-5.25% range. This is the 10th secure hike in central bank interest rates from the 0% level since March 2022.
Fed Monetary Policy Statement
In its accompanying monetary policy statement, the Fed made a few key updates, including toning down its reference to expecting “further policy firming” (read interest rate hikes) and deleting its reference to “future increases in the target range” for interest rates.
As the Wall Street Journal’s “Fed Whisperer” Nick Timiraos notes, “the statement used broadly similar language to officials concluding interest rate hikes in 2006, without an explicit promise of any pause in preserving a bias to tighten”.
The decision was unanimous.
Fed Chairman Powell’s press conference
Chairman Powell has still finished his press conference as we go to press, but with most pontifications behind us, Powell appears to be threading the needle between leaving the door open for further rate hikes while remaining sensitive to tensions. More importantly, it has pushed back relatively aggressively on any interest rate cuts this year, something the market had (and to some extent still has) priced in.
Highlights from the press conference
- THE SITUATION OF THE BANKING SECTOR IS GENERALLY IMPROVED.
- WE WILL USE THE DATA TO DETERMINE THE AMOUNT OF FUTURE RATE INCREASES.
- THE LABOR MARKET REMAINS VERY TIGHT.
- WAGE GROWTH SHOWED SOME SIGNS OF SLOWDOWN.
- ECONOMY SHOULD BE MET BY CREDIT CONDITIONS.
- WE ARE PREPARED TO DO MORE IF MORE IS JUSTIFIED.
- PRICE A DECISION ON A BREAK WAS NOT TODAY.
- THE STATEMENT CHANGE WAS SIGNIFICANT.
- MORE DATA WILL BE REQUIRED BEFORE WE CAN DECLARE THAT WE HAVE REACHED A SUFFICIENTLY RESTRICTIVE POSITION.
- WE ARE TRYING TO REACH, THEN MAINTAIN, A SUFFICIENTLY RESTRICTIVE POSITION TO REDUCE INFLATION.
- AVOIDING A RECESSION IS MORE LIKELY THAN EXPERIENCING ONE.
- SALARY INCREASES MUST BE CLOSER TO 3%
- THE FED’S ATTENTION WILL NOW BE FOCUSED ON CREDIT TIGHTENING.
- RATE CUTS WILL BE INAPPROPRIATE AS WE BELIEVE INFLATION WILL TAKE A TIME TO DECREASE.
- WE WILL NOT CUT RATES IF INFLATION REMAINS HIGH.
Analyze US Dollar Technical » EUR/USD
The initial reaction to the Fed’s decision and statement showed that the market was relatively calibrated in expecting a dovish rise. The US dollar and short-term interest rates initially fell before rising to near-systematic levels ahead of Fed Chairman Powell’s press conference.
The premiere starts from the press conference mostly went according to the script, with a bit of a chop but no major market moves. Towards the end of the press conference, the president began to push back more aggressively on interest rate cuts this year, which led to a slight movement in risk aversion. As we go to press, the US Dollar is recovering from its lows against its major rivals (although still down across the board), major indices are falling, and gold is showing above. above $2020.
With the Fed-link now largely behind us, traders in the pair EUR/USD He was focused on the European Central Bank meeting. In the short term, the bulls will look to lift the pair above horizontal resistance in the 1.1075-1.1100 area to extend the ongoing rally towards 1.1200 in the coming days. On the other side, a case of 21-day moving EMA after 1.10 would signal that a deeper pullback could be in the cards.
By Matt Weller, CFA, CMT, FOREX.com » Official Site
Matt Weller is the Global Head of March Studies for FOREX.com and City Index. According to his surveys, Matt uses a fusion of fundamental, technical and sentiment analysis to anticipate potential market movements. His analyzes are regularly published in the Financial Times, Reuters, MarketWatch and the Wall Street Journal. Matt holds both Chartered Financial Analyst (CFA) and Chartered Market Technician (CMT) licenses.
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation to buy or sell forex cambio contracts or CFDs. Although the information contained in the document comes from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages which may result in a breach.