US dollar remains firm post-FOMC

US retreats after FOMC mega-hike

The US dollar gave back some recent gains overnight post-FOMC as Powell’s comments post-meeting were interpreted as implying a less aggressive scale of rate hikes. To me, that is a flawed interpretation, as the FOMC signalled a higher terminal rate and lifted its end-of-2022 target rate as well. ​ Even if we don’t get any more 0.75% hikes, rates are still going up each meeting and will finish at a higher level. Indeed, the US dollar retreat was very mixed. It hardly moved against the euro and gave only modest gains to the Yen and Asian currencies, while sentiment currencies like the AUD and GBP outperformed.

The dollar index finished 0.60% lower at 104.85, and in Asia, has already regained 0.20% to 105.05. The dollar index has tested, but bounced off support at 104.60 for three days in a row, marking it as an important support and pivot point now. Resistance remains at 105.70 and 108.00.

EUR/USD gleaned only a 0.28% gain to 1.0445 overnight and has already fallen by 0.15% to 1.0430 today. Fragmentation concerns are the new buzzword dogging the central currency now and its price-performance overnight was underwhelming, to say the least. EUR/USD fell through support at 1.0400 overnight in a choppy session, but equally, failed ahead of 1.0500 as well. Support lies between 1.0350 and 1.0360, with resistance at 1.0500 and then 1.0650.

An under-pressure sterling bounced by 1.46% to 1.2170 overnight, owing the recovery as much to EUR/GBP selling as to the rebound in sentiment post-FOMC. It now faces a BOE rate decision today itself with 25 bps priced in and unlikely to be supportive, particularly if BOE’s economic guidance is negative. Only a 0.50% hike and a tilt to hawkish guidance are likely to keep the rally going. ​ GBP/USD has fallen by 0.20% to 1.2145 in Asia. Support is at 1.1935, with resistance at 1.2200 which has held over the past two sessions.

USD/JPY traded in a wild 200-point range yesterday, finishing 1.22% lower at 133.80 post-FOMC. The yen rally has faltered already with USD/JPY rising by 0.35% to 134.25 in Asia. Tomorrow’s BOJ policy meeting sets the cross up for another directional move at the end of the week. However, if the BOJ raises the JGB yield cap, USD/JPY could have a potentially ugly move lower. Support is at the overnight low of 133.50, with resistance at the overnight high of 135.60.

AUD/USD was a star of the overnight session, leaping 1.93% higher to 0.7005 as sentiment made an abrupt recovery post-FOMC. It remains unchanged in Asia, having probed the 0.7030 level intraday after strong employment data. If the US equity rally runs out of steam this evening, AUD/USD could well give back most of its gains. It has resistance at 0.7050, with support at 0.6870. NZD/USD rallied less impressively, gaining 1.10% to 0.6285 today where it remains in Asia. Soft GDP data will increase nerves around New Zealand’s economic outlook and appears to be limiting gains. It too will fall if US equities track lower this evening.

USD/Asia has a very muted reaction relatively to the rebound in investor sentiment after the FOMC policy meeting. Asian regional currencies recorded only modest gains overnight, and today, that has reversed sharply as the prospect of slower US growth and widening US/Asia rate differentials took their toll on local currencies.USD/THB, USD/NTD, and USD/KRW are now 0.60% higher today, and yesterday, the Bank of Thailand was sighted intervening. Offshore USD/CNY has risen 0.60% as well, while USD/SGD and USD/INR are 0.20% higher. Overall, the price action by Asian FX has been underwhelming and that suggests that if US markets run out of recovery steam tonight, another wave of selling is inbound for regional currencies.