Fed signals no rate hikes in the next few months and Dollar takes a hit

General market theme
So the Fed meeting is now behind us and what we learned from the statement that the central bank released after it is pretty much what we already knew: the Fed is cautious about the deterioration of domestic data meaning that we will hardly see a rate hike in June but we should expect more tightening during the current year. Looking at the statement from one perspective it seems negative for the Dollar and indeed it is, at least for the short term, however on a more medium-to-long term basis the statement reaffirmed Fed’s confidence in the US currency which will gradually recover with the next months.

Price action highlights
The Euro was lifter higher at the beginning of the day but the volatility that picked up during the release of the Fed statement sent the currency to test its recent lows at the 1.1270 area. However the Euro managed to end the day on a positive note reaching for the 1.1350 area where we find it this morning and given the negative bias that the Fed event had for the Dollar, at least for the short term, we expect more gains from the Single currency. Today’s calendar holds reports from Germany and the Euro area, with German unemployment and inflation figures being the most interesting. If the Euro edges higher then the 1.1380 peaks as the next area of focus.

The Cable pushed lower yesterday and after the release of the Fed statement the UK currency tested the 1.4500 area of support extending its current correction to the downside. However it seems that the Dollar weakness that stemmed from the Fed meeting will allow the Pound to move to the upside once more and this morning the currency is trading in close proximity to the 1.4600 level with a view to test its recent 1.4640 highs. There are no UK-related events scheduled for today so the Cable will take its cue from the Euro and the Dollar.

Focus of the day
The German unemployment and inflation data are the most price-sensitive reports of the day and the US Personal Consumption will also play a role in the way the Dollar trades today. A stagnating inflation in Germany might take a toll on the momentum of the Euro this morning but with Dollar weakness being the theme of the market we expect more gains from the European currency in the sessions ahead.