The U.S. Dollar is trading in mixed ranges after some wild swings that brought it down from where it was at the start of yesterday’s session.
Overview
At the moment of writing, some of the gains seen across other currencies this afternoon and overnight have started to dwindle to an extent. The wild action began after the Fed’s policy meeting exuded an air of dovishness, with Chairman Jerome Powell stating that the dot plot would remain the same with a likely start to cuts in June or July. While being questioned throughout his press conference, Powell made it clear that officials saw it as unlikely that the plan for cuts would be scrapped. While the U.S. economy remains stable, it seems the Fed may see some use in getting ahead of economic pain.
More importantly, Powell explained that there would not be a focus on “quantitative tightening,” meaning they feel comfortable with their balance sheet without shrinking or adding to it. If there are talks of any easing down the line, this could hurt the Buck significantly. During the Asian and European sessions, the USD managed to prevent further decline as other shocks came to the system, fueling a resurgence in risk appetite with some indices already at record highs. The Swiss National Bank was the first among the G-10 financial authorities to begin cutting interest rates after a 25-basis-points reduction.
What to Watch Today…
EUR ⇑
The Euro came out a winner following Wednesday’s events that ultimately caused a loss for the Buck against most currencies. The Fed’s decision to keep plans for cuts into the Summer fed into equities but also made it seem that the Fed is more likely to cut before the European Central Bank does. This stance changed dramatically during our early morning as the Swiss Bank’s expansionary policy move increased the odds for ECB cuts by June from 64.0% yesterday to 82.0% currently. In comparison, the chances of a Fed cut remained around 66.0%. ECB President Christine Lagarde sounded confident about being careful and allowing data to play a role in their decision-making. The way she presented it, ECB officials are not jumping to stimulate the economy. Nevertheless, the globe sees a struggling Euro-zone, and the rally for the shared currency has come to a quick end despite ECB’s confidence.
CHF ⇓
The Swiss Franc fell to its weakest point since November after the surprise decision by the SNB to cut interest rates, thus becoming the first advanced economy pivoting from a tightening cycle. Indeed, after 2 years of focusing on fighting inflation, Swiss officials wanted to bring a spark to their economy. It is not the first time that the SNB caught everyone unprepared with the 2015 drop of the CHF/EUR cap that jolted FX markets and an out-of-nowhere 50-basis-points interest rate hike in 2022, when not all banks were convinced to attack inflation because it was ‘transitory.’ Now, we have some volatility and growing speculation about how this change will affect decision-making elsewhere. For now, the Buck worsened, but if easing takes over globally, other tender could suffer quickly.
