US dollar rises as Fed signals near zero rates for three years

The US dollar rose in overnight trading as traders reacted to the latest Federal Reserve interest rate decision. The bank decided to leave interest rates unchanged at the current range of 0.0% and 0.25%, as most analysts were expecting. The members also voted to continue with the ongoing asset purchases, which they believe is necessary to support the economy. Most importantly, they signalled that they would leave interest rates at the current levels until 2023. Also, it will not raise interest rates even after the rate of inflation rises above its target of 2%. 

The Japanese yen eased slightly as investors reacted to the Bank of Japan interest rate decision. Like the Federal Reserve, the bank decided to leave interest rates unchanged at the current level of -0.10%. The bank will also continue with the asset purchases as it continues to steer the economy through the crisis. The decision came a day after Yoshihide Suga became the new prime minister of the country. It also came at a time when Japan is facing its longest economic downturn in years. The economy declined by 7.4% in the fourth quarter of 2019, 1.6% in the first quarter, and by 28.1% in the second quarter. 

The Australian dollar declined slightly in overnight trading as traders reacted to the latest employment data from the country. The data showed that the country’s unemployment rate declined to 6.8% in August even as the country continued to report a new wave of infections. The median estimate by analysts was that it would increase to 7.7%. The participation rate increased to 64.8% from 64.7% while the economy added more than 111k new jobs. Elsewhere in New Zealand, data from the statistics bureau showed that the economy contracted by 12.2% in the second quarter leading to a 12.4% year-on-year decline. The contraction was better than the 12.8% that analysts were expecting. 

Later today, we will receive the Bank of England interest rate decision. Most analysts expect that, like the Fed and BOJ, the bank will leave rates and its asset purchases program unchanged. In Europe, Eurostat will release the bloc’s inflation data. Elsewhere, in the US, we will receive the housing starts, building permits, and jobless claims data.

EUR/USD

The EUR/USD pair declined sharply in overnight trading as traders reacted to the Fed rate decision. The pair is now trading at 1.1765, which is the lowest it has been since September 9. On the four-hour chart, this price is below the short and medium-term moving averages. It is also below the lower line of the ascending channel. The RSI has declined while the volatility has increased. Therefore, the outlook for the pair is bearish but bears will need to move below the support at 1.1750.

USD/JPY

The USD/JPY pair declined after the Fed delivered its decision and then pared back some of those losses. It is now trading at 105.05, which is slightly above the overnight low of 104.78. The price is below the 50-day and 25-day exponential moving averages while the RSI has moved from the oversold level of 19 to the current 31. The price is likely to resume the strong downward trend as traders target the next support at 104.50.

NZD/USD

The NZD/USD pair dropped to an intraday low of 0.6683. The price has moved below the 50-day and 25-day exponential moving averages. At the same time, the signal and main line of MACD have made a bearish crossover while the Average Directional Movement index has continued to fall. Therefore, the pair is likely to continue falling today as bears target the next support at 0.6600.