Fed rules out a rate hike on June and Dollar declines, consolidation time?

So finally the FOMC meeting is behind us and it’s time to assess what the Fed said in their statement after it and how that will affect the major currency pairs’ outlook. The statement was more or less what we expected it to be, the central bank acknowledged the slowdown in the domestic economy especially in the labour market and spending metrics while the inflation remained below their targets.

So with the statement being a bit more dovish than before we believe that as we have claimed in the our previous analysis of this matter a rate hike in June is almost certainly off the table. As a result of that the US Dollar posted further losses against its peers but not to an extravagant extent. We believe that this development with the Fed being more dovish but at the same time optimistic about renewed growth soon Dollar’s weakness will ease a bit and we will see a consolidation attempt up until the Non-Farm Payrolls report next Friday.

On the back of the Fed meeting and statement, the major currency pairs extended their gains versus the US Dollar as traders unwound some of their extreme pro-Dollar positions now that a rate hike in the next couple of months is out of the question. The Euro traded up to almost 1.1200 on the back of the Fed statement while the Cable made it all the way to 1.5500 after the news hit the wires.

Overnight however we saw a slight retreat off these highs on both currencies and as we mentioned above the most likely scenario moving forward would be a consolidation between the fresh highs and the major support floors below them. For the Euro we could see the Single currency trading between the 1.1000 and 1.1200 levels for the next few days leading to the NFP report next week while the Cable will most likely settle between 1.5300 and 1.5500.

For the day ahead we will have the chance to find out more about Europe’s rate of progress, the German Retail Sales and Unemployment Rate and the Euro-zone inflation levels are all scheduled for release while the US Personal Consumption report from the US also has some value. If the figures print as expected we could see a further attempt from the Euro to reach its 1.1200 resistance with little chance of overcoming it.