Forex Today: USD drops after the Fed, but shows signs of life

Here is what you need to know on Thursday, March 23:

On a volatile session, Wall Street finished lower on Fed’s monetary policy decision day. The US central bank raised rates as expected by 25 bps. The end of the tightening cycle is near as the Federal Reserve balances between elevated inflation and banking turmoil. Stocks jumped after the announcement but then pulled back, making a reversal, helped by US Treasury Secretary Janet Yellen’s comments. She said they are not considering “blanket insurance” for bank deposits. 

US yields dropped on Wednesday, with the US 10-year falling to 3.43% and the 2-year to 3.92%. The US Dollar Index lost 0.65%, falling for the fifth consecutive day. Despite reaching weekly lows against most of its rivals, the greenback finished far from the lows, giving some positive signs. Volatility across the FX board will likely stay elevated and could trigger a broad-based recovery or send the Dollar to fresh lows. 

The Japanese Yen was among the top performers, helped by the decline in US yields. USD/JPY posted the second-lowest close in a month, below 131.50. 

The Euro also rose across the board, supported by comments from European Central Bank (ECB) officials that suggest that if the banking crisis eases, more rate hikes seem the way to go. The combination of a weaker US Dollar post-FOMC and a robust Euro, sent EUR/USD to 1.0911, the highest since February 2, before retreating to 1.0860. 

The Bank of England is likely to deliver another rate hike on Thursday after its Monetary Policy Committee meeting. Forecast consensus point to an increase of 25 bps, particularly after inflation accelerated unexpectedly in February, with the annual rate rising to 10.4%. GBP/USD hit levels above 1.2300 on Wednesday, but finished around 1.2260. It still holds a bullish bias, but continues to be unable to consolidate above 1.2300. 

USD/CHF dropped below 0.9200 to the lowest in a week. The Swiss National Bank (SNB) announces its monetary policy decision on Thursday, with market participants expecting a rate hike of 50 bps to 1.50%. 

SNB Preview: Forecasts from six major banks, acting with caution

Commodity currencies were hit by the decline in equity prices on Wall Street.  AUD/USD reversed sharply from 0.6759 to 0.6680, NZD/USD approached 0.6300 and ended closer to 0.6200 while USD/CAD spiked down to 1.3655, to finish the day higher above 1.3730. Stocks are driving the directions of the pairs at the moment. 

Bitcoin tumbled after the FOMC meeting, falling from $28,800 to as low as $27,700. Gold and Silver jumped, boosted by lower US yields. Crude oil prices finished practically flat after reaching weekly highs.