Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Powell says outlook uncertain, but hikes unlikely
The US dollar was lower overnight after the critical US Federal Reserve decision saw the US central bank push back against some of the worst-case projections about a resumption of inflation pressures and said rate hikes were unlikely.
Fed chair Jerome Powell admitted the outlook has changed, saying a move back to target on inflation “”will take longer than previously expected”, the outlook was “uncertain” but also said he expected inflation at the end of the year to be “lower than it was”.
On rate hikes, Powell said: “I think it’s unlikely that the next policy rate move will be a hike. I’d say it’s unlikely.”
The Fed also effectively loosened policy by announcing a reduction in the sales of earlier bond purchases – down from USD60bln per month to USD25bln per month – in a move that Fed said was driven by administrative goals rather than monetary policy ends.
Greenback lower from six-month highs
On balance, the Fed was less hawkish than the market had feared.
US shares were mixed, with the Dow Jones index higher, but the S&P 500 and Nasdaq both lower.
US bond yields were mostly higher with the US two-year bond yield at 5.05% — the highest close since 13 November.
The US dollar fell with the USD index down 0.6% overnight as it turned from recent resistance at the six-month highs.
The AUD/USD rebounded from one-week lows with a 0.8% gain.
The NZD/USD climbed from a two-week low with the pair up 0.7%.
BoJ hits markets post Fed
Japanese authorities look to have taken the opportunity of a post-Fed lull in liquidity to re-enter and push the USD/JPY lower with the “twilight zone” between the end of New York trading and the start of trading in Asia.
The USD/JPY plunged 450 pips in 40 minutes around 7.00am AEST on Thursday morning with the pair ending the day down 2.1%. The USD/SGD and USD/CNH were also sharply lower on the move.
Today’s intervention goes against the thesis of a particular line in the sand and points to the Japanese authorities including the Ministry of Finance and Bank of Japan wanting to shock markets, make policy moves more unpredictable, and make betting against the yen more difficult.
The Japanese Ministry of Finance took the weaker than expected US macro data (both the Job Openings and Labor Turnover Series and manufacturing PMI numbers disappointed overnight) and neutral Fed meeting as an opportunity to intervene in FX markets for a second time this week.
Japanese policy makers likely had the intent to shock speculators and make interventions more unpredictable. The USD/JPY now sits back at levels seen before the Bank of Japan meeting last Friday, which accelerated the yen’s depreciation and kickstarted the intervention series.
Aussie, kiwi bounce back after Fed
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