USD drops back after Fed-driven surge
The Fed delivered a ‘hawkish’ cut yesterday that was a tad more hawkish than the markets were prepared for.
Along with the expected 1/4-point cut, the dot plot shifted higher, reflecting only two anticipated cuts next year and a higher median long run rate (3%), Scotiabank’s Chief FX Strategist Shaun Osborne notes.
USD edges lower as threat of US government shutdown curbs gains
“Notably, there was dissent—Cleveland Fed President Hammack voted for no change and three other non-voting policymakers also favoured a hold.
Chair Powell remarked in his press conference that this decision was a “closer call”. The policy statement modified the forward-guidance to stress officials will consider the “extent and timing” of future adjustments to suggest a slower pace of easing, which Powell effectively confirmed in his press conference.”
“The bar to another cut in the next few months looks quite high; swaps suggest it may be June or July before the Fed eases again.
The USD jumped in response to the Fed and, despite some losses so far today, looks poised to remain strong, with the support of firm or firmer US yields. The threat of a US government shutdown may impede the USD’s progress in the short run but the DXY continues to track a similar path to its post-2016 election trend. Uncanny.”
Source: FXStreet
