Forex Markets: Dollar Dives as Fed Indicates No Rate Hikes in 2019
On Thursday, the USD recovered in Asia after falling the previous day. The recovery followed the U.S Fed’s ruling on no interest rate hikes in 2019 surprised markets.
The slowing global and domestic growth made the Fed leave its benchmark rate on hold. It also abandoned projections for any interest rate hikes this year.
The surprise news sent the U.S Dollar Index to lower against a basket of other currencies overnight. By 11.30 PM (03:30 GMT), the index had clawed back some of its losses and gained 0.2% to 95.382.
The Fed also trimmed its projections for inflation and economic growth.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the Fed said in a statement.
Fed’s statement contrasted with its stance three months ago, when it projected two interest rate hikes for this year.
In a Reuters report, Joseph Capurso- the CBA senior currency strategist said, “The more cautious tone and downgraded U.S. economic outlook will limit dollar upside.”
Elsewhere in Europe, China, Australia, and Japan, there’s a similar soft economic growth outlook. Therefore, makes is questionable whether the USD will depreciate to any significant extent.
Also, the plunge in the pound amid fears the U.K could crash out EU without the Brexit deal on March 29 supported the dollar. The EU reportedly said it would only agree to a short delay to Brexit if U.K lawmakers support May’s withdrawal agreement next week. On Wednesday, May urged lawmakers to support her deal and that she was not prepared to delay Brexit any further than the 30th June.
The USD/CNY pair was down 0.1% to 6.6823.
The AUD/USD pair gained 0.4% to 0.7145 even after data showed a surprise drop in Australia’s jobless rate.
Forex Markets: British Pound loses most of the overnight gains on Brexit woes
Yesterday, the GBP/USD pair experienced a high volatile price action in the global market owing to influence from Brexit woes.
Brexit uncertainties caused a sharp decline in the pair. However, dovish Fed guidance caused the pair to recover from intra-day lows near the mid – 1.31 handle to mid-1.32 handle in American market hours.
However, the pair once again fell from intra-day high as headlines suggested that a third vote may happen on May’s Brexit deal next week. Headlines suggested the vote despite the House of Commons speaker’s rejection earlier this week.
Headlines also stated EU’s Juncker wanted UK to participate in EU elections in case of Brexit extension to avoid confusion that could occur if the UK’s seat is vacated ahead of Brexit.
Given the current scenario hinting a messy Brexit, investors would like to know the Fed’s stance on plans for 2019 before they can place their bets. They are also cautious ahead of today’s interest rate decision.
These factors weigh down the GBP in the global market causing the pair trading range bound in Asian and early European market hours.
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