After the Federal Reserve raised interest rates to the expected 25 basis points yesterday afternoon, the United States Dollar lost some ground but in muted price action.
Overview
At the press conference, Jerome Powell’s cautious phrasing immediately following the decision did what he intended and kept both currency and equity markets relatively subdued. Powell’s remarkably even tone gave traders very little to go on with regard to the direction of the USD.Important to note in the Fed’s initial statement, though, is the removal of any language regarding future guidance. The Fed’s path forward, especially for the June meeting, is very up in the air, and the central bank highlighted its continued “data-dependent” approach.Though the broad Dollar index fell through the afternoon, it was a slow and steady decline without much choppiness. The Fed’s statement did say that if data warrants it, it reserves the right to hike rates again in the future, however unlikely that may be. Continued pressures in the financial sector and a softening labor market are undoubtedly at the forefront of the governors’ minds. One thing became clear: if the Fed has not already reached the end of this tightening cycle, it is not far off.
What to Watch Today…
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EUR ⇓
This morning, the single currency fell in very choppy trading after the European Central Bank hiked interest rates by 25 basis points. Although Christine Lagarde’s words in her press conference leaned more hawkish as she continued to emphasize upside risks to inflation, markets took the overall tone as more dovish, and EUR fell a third of a percent from the morning’s opening prices. Lagarde made it clear that the ECB is not near the end of its hiking cycle, though, and in the longer time, it’s likely that EUR will gain ground against the greenback.
GBP ⇑
Pound Sterling posted nearly a seven-tenths percent gain against USD through yesterday’s trading and into this morning as markets digested the latest releases from the Federal Reserve. As the UK gears up for the Bank of England’s meeting next week, traders expect a 25 basis point hike. Inflation remains quite entrenched in the region. Prime Minister Rishi Sunak has repeatedly staked his reputation on returning it to a 2 percent benchmark to alleviate the “cost-of-living crisis.”
