The U.S. Dollar is trading in weaker ranges this morning following a busy overnight session in reaction to the Federal Reserve’s monetary policy announcement.
Overview
In what seemed like a mixed bag, Chairman Jerome Powell’s message was taken as a mostly “dovish” one for the Fed. Part of why is because, coming into this meeting, the biggest fear across markets was that the Fed would start mentioning the need to hike, instead of cutting, interest rates to manage a better economy and stubborn inflation. Powell had to make it clear that they were not considering another interest rate bump and that the evidence in price growth would have to be extremely persuasive for any “hawkish” action.
One thing that makes it seem like the Fed is entertaining and making the financial environment more accommodating is the end of “quantitative tightening,” in which the Fed’s balance sheet was reduced. Having its hands on sovereign bonds and other assets plays it safe. There may not be a will to initiate the lowering of borrowing costs, but at least now investors can breathe in knowing the Fed is not deviating too much from wanting looser policy. The chances of a cut for the June meeting stand at 10.0%. We will get a few data points to close out the week and will watch for market volatility following the Bank of Japan’s FX intervention overnight when they spent $23.0BN.
What to Watch Today…
- US Nonfarm Payrolls, Friday 8:30 AM
- Monex USA Online is always open.
MXN ⇑
The Mexican Peso is enjoying some fortune, leading Emerging-Market currencies to recover ground after hearing the Fed and determining that. Indeed, the tightening cycle remains closed. At one point earlier, the Peso has jumped by the most since November. An upbeat mood following Mexico’s Labor Day holiday could mean some re-strengthening, and the Buck could withstand a bit of tumbling after an April truly in its favor, sinking MXN by 3.0%.
JPY ⇑
The Japanese Yen moved wildly within a 3.0% range as a result of the Bank of Japan’s decision to intervene in the foreign currency market. The BOJ has been talking a lot and hinting at the potential for a move, but few saw this coming post-Fed. We are now wondering if other central banks will do the same, as it is indeed an expensive effort. While the yen’s strengthening is not outrageous, the currency has escaped its weakest point in 34 years. Expect more chatter about the potential for another hike by the BOJ, which could make the Yen advance over the Buck. The odds of a hike by the BOJ at their July meeting stand at 72.0%.
