Dollar falls broadly after Fed's dovish tilt

Market Review - 19/06/2019  23:40GMT  

Dollar falls broadly after Fed's dovish tilt

The greenback tumbled against its major peer currencies in hectic New York afternoon after the Federal Reserve kept its interest rate unchanged and signalled at a potential rate cut by the end of the year.  
  
Reuters reported the U.S. Federal Reserve held interest rates steady on Wednesday but signaled possible rate cuts of as much as half a percentage point over the remainder of this year, as it responded to increased economic uncertainty and a drop in expected inflation.  The U.S. central bank said it "will act as appropriate to sustain" the economic expansion as it approaches the 10-year mark and dropped a promise to be "patient" in adjusting rates. Nearly half its policymakers now show a willingness to lower borrowing costs over the next six months.  
  
While new economic projections showed policymakers' views of growth and unemployment largely unchanged, they saw headline inflation at just 1.5 percent for the year, down from the 1.8 percent projected in March.  
They also expect to miss their 2 percent inflation target next year as well.  
Seven of 17 policymakers said they expected it would be appropriate to cut rates by half of a percentage point by the end of 2019, and an eighth saw a rate cut of a quarter point as appropriate.  That was not enough to change the median outlook for the Fed's targeted overnight lending rate, which officials projected to remain in a range of between 2.25% and 2.50% for the rest of this year.  
  
But it still represented a significant shifting of views on the Fed. It appeared many, and perhaps most, policymakers trimmed a full half percentage point from their outlook for rates. Only one policymaker continues to see a rate hike as likely in 2019.  
Fed's Powell in post-FOMC press conference said : 'cross currents in global economy have emerged; many FOMC participants see stronger case for rate cuts; growth projections mask important details about composition of growth; many FOMC participants cited weaker business investment n cross currents as reason for seeing cuts; many participants see inflation coming to target more slowly than expected; rising wages not providing upward push on inflation; risks to growth n lower inflation expectations created concerns over sustained shortfall in inflation; even participants who who saw no cuts said case for accommodation is stronger now; will use tools as appropriate to sustain economy.'  
  
Versus the Japanese yen, although dollar initially rose to 108.61 at Asian open, price quickly met renewed selling and fell to 108.24 at European open due to cross-buying in jpy before recovering to 108.49 at New York open on short covering. Later, the pair tumbled in New York afternoon to session lows 107.91 after the Fed's dovish tilt, price last traded at 108.09 at the close.  
  
Although the single currency remained on the back foot in Asia following Tuesday's selloff, price fell from 1.1202 at Asian open to 1.1188, failure to penetrate Tuesday's 1.1182 2-week low triggered short-covering and price rebounded to 1.1207 in Europe and later rallied to session highs of 1.1254 in New York afternoon on usd's broad-based weakness in post-FOMC trading.  
  
The British pound recovered to 1.2569 in Australia, and despite subsequent retreat to 1.2543 in European morning, cable erased its losses and rallied to 1.2638 in New York morning, the pound extended intra-day strong gain to session highs of 1.2674 in New York afternoon on dollar's broad-based weakness.  
  
On the data front, Reuters reported Britain's inflation rate cooled in May and cost pressures in factories fell to a three-year low, according to data that might reassure the Bank of England that there is no urgency to raise interest rates.   
Consumer prices rose at an annual rate of 2.0% in May, matching the consensus of a Reuters poll of economists and following a 2.1% increase in April, the Office for National Statistics said on Wednesday.   
Core inflation, excluding energy, food, alcohol and tobacco, dropped to 1.7% in June, the lowest annual rate since January 2017 and as expected in the Reuters poll.   
  
Among manufacturers, the cost of raw materials - many of them imported - was 1.3% higher than in May 2018, slowing from 4.5% in April and marking the weakest increase since June 2016. Economists polled by Reuters had expected input prices to rise by 0.8%.   Manufacturers increased the prices they charged by 1.8% last month compared with 2.1% in April, broadly in line with the consensus forecast of 1.7% and similarly marking the lowest rate since September 2016.   
  
Data to be released on Thursday :  
  
New Zealand GDP, Japan Bank of Japan interest rate decision, all industry activity index, Swiss trade balance, exports, imports, France GDP, UK retail sales, BoE MPC vote hike, BoE MPC vote unchanged, BoE MPC vote cut, BoE interest rate decision, BoE QE total, BoE QE corporate bond purchases, U.S. current account, initial jobless claims, Philadelphia Fed survey, Canada ADP employment change, and EU consumer confidence.