Dollar tumbles after expected rate hike due to dovish Fed 'dot plot'

Market Review - 22/03/2018  00:10GMT  

Dollar tumbles after expected rate hike due to dovish Fed 'dot plot'

The greenback dropped against majority of its peers on Wednesday inspite of a 25 basis point rate hike from the Federal Reserve as the Fed 'dot plot' showed at a total of 3 rate hikes this year as opposed to previous forecast of 4.  
  
The Fed raise its rate to 1.50-1.75% and said it 'raises view of estimated neutral fed funds rate following years in which it lowered estimates; sees Fed funds rate at 2.875 pct at end-2019 compared with 2.688 pct in Dec forecast; economic outlook has strengthened in recent months; inflation on 12-month basis is expected to move up in coming months; economic activity has been rising at 'moderate rate;' previously described rate as 'solid'; job gains have been strong; growth rates of household spending and fixed investment have moderated; near-term risks to the economy appear "roughly balanced"; vote in favor of policy was unanimous.'  
  
Versus the Japanese yen, dollar met renewed selling at 106.55 in Australia and dipped to 106.45 in Asia then ratcheted lower to 106.10 ahead of New York open. Despite a brief but sharp rise to 106.64 after Fed's rate hike, price swiftly erased its gains and tumbled to session lows at 105.89 in New York afternoon.  
  
The single currency traded with a firm bias in Asia and rose to 1.2290 in European morning, then higher to 1.2296 in early New York morning. Despite a brief drop to 1.2252 in New York after Fed's rate hike, euro rallied strongly due to broad-based usd's weakness after dovish Fed 'dot plot' and later climbed to session highs of 1.2350.  
  
The British pound traded with a firm bias in Asia and gained to 1.4075 in Europe on upbeat UK wages data. Price continued to ratchet higher on cross-buying of sterling vs euro and then jumped in New York afternoon to session highs of 1.4150 on dollar's broad-based weakness.  
  
Reuters reported the Office for National Statistics said workers' total earnings, including bonuses, rose by an annual 2.8 percent in the three months to January, the biggest increase since the three months to September 2015 and compared with an upwardly revised 2.7 percent rise in the three months to December. That beat all forecasts in a Reuters poll of economists that had pointed to a reading of 2.6 percent.   
  
In other news, Fed's Powell said 'FOMC expects that the job mkt will remain strg; economic outlook has strengthened in recent times; the shortfall of inflation reflects some unusual price declines fm last year; inflation may be above or below 2% at times; today's decision to raise rates another step in gradual position; only gradual upward pressure on inflation despite fall in unemployment; Fed is trying to take the middle ground on raising rates; no sense in the data that we are on the cusp of an acceleration in inflation; FOMC still sees neutral rate of interest as quite low; will carefully consider whether to hold more press conferences; Fed does not think that changes in trade policy should affect outlook; Fed's forecasts will change over time as economy evolves; FOMC participants reported that they had heard concerns about future trade action and effect on future outlook.'  
  
On the data front, UK unemployment rate fell to 4.3%, below the consensus forecast of 4.4%.  
  
Data to be released on Thursday:  
  
New Zealand RBNZ interest rate decision, Australia employment change, unemployment rate, Japan Nikkei manufacturing PMI, all industry activity, France business climate, GDP, Markit manufacturing PMI, Markit service PMI, Germany Markit manufacturing PMI, Markit service PMI, Ifo business climate, Ifo current conditions, Ifo expectations, EU current account, Markit manufacturing PMI, Markit service PMI, UK retail sales, core retail sales, BoE MPC vote hike, BoE MPC vote unchanged, BoE MPC vote cut, BoE interest rate decision, QE total, QE corporate bond purchases, and U.S. initial jobless claims, monthly home price, Markit manufacturing PMI, leading indicator, Markit services PMI, KC Fed Manufacturing.