Cautious Fed sends USD lower
|As broadly expected the Federal Reserve increased rates by another 25bps and adopted a cautious approach during its June meeting. After spending most of Wednesday grinding lower, the greenback appreciated sharply in the minutes before the announcement but erased those gains immediately as investors realised nothing has changed. It is true that the statement underwent significant change as the FOMC removed the “forward guidance” part, which was a remainder of the financial crisis.
Regarding the dots plot, it didn’t change much as well. Fed members continue to signal two more rate hikes for 2018, most likely in September and December. Nevertheless, he said that interest rate decisions are not on autopilot and can adapt to unexpected development of the economy, which gives the Fed flexibility to stay sidelined should the economy need a breather.
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Powell carefully avoided mentioning the trade war initiated by Donald Trump, even though it could have significant consequences for the US economy and recalled that trade policy is not part of the Fed mandate.
In the FX market, the buck is losing ground against all its G10 peers, with the exception of the Australian dollar that is suffering from trade war uncertainties and weak Chinese data. With the Fed is already in the rear view mirror, investors are impatiently awaiting this afternoon ECB meeting.
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