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  • Forex today was centred around the Fed; however, before the event, the U.S. data fell well short of expectations.
  • The dollar was whipsawed throughout the day, picking up lost ground and ending higher on the day following Fed’s Powell’s presser which superseded the benign  FOMC statement.  

The DXY traded between 97.15 lows to a high of 97.73 by the time Powell had wrapped up an upbeat  press-conference. However, before that, the dollar was on its knees, and the US 10yr treasury yield initially fell from 2.50% to 2.47% following the disappointing manufacturing data which  dropped  to a 2 .5  year low of 52.8 from 55.3. The yield then scored a fresh low of  2.46% on the initial FOMC headlines but bounced to 2.51% on Powell’s upbeat assessment of the U.S economy – The chance of a Fed rate cut by December, implied by Fed fund futures, decreased from 100% to 70%.


Firstly, the US Federal Reserve unanimously decided to keep their target range for Fed Funds unchanged at 2.25%-2.50%, as expected. However, there was a side of the market waiting for a more dovish statement that followed., which wasn’t to be. Instead, the Fed stuck to their script  reiterated their pledge to remain “patient” and upgraded their assessment of current activity trends to “solid” from “slowed” albeit  downgrading their assessment of inflation, noting it has been, “running below 2 percent”.

Here is the new statement  which remains basically consistent with the Fed’s script:

Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that  economic activity rose at a solid rate.  Job gains have been solid,  on average, in recent months, and the unemployment rate has remained low. Growth of  household spending and business fixed investment slowed  in the first quarter. On a 12-month basis,  overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of  inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

And then came along Powell …

  • Powell:  Our baseline view remains that with a strong job market and continued growth, inflation will return to 2% over time.
  • Powell: We have come closer (to inflation target) than most others (central banks).
  • Powell: We don’t see any sign s of overheating.
  • Powell: Outlook is positive for growth for the rest of the year due to consumer spending and business investment – (higher levels of wages and employment).  

Powell has essentially told markets that all is on track towards the Fed’s target and the market  bought into it,  making the dollar and denominated assets attractive to investors. Powell was essentially blaming transitory factors for the recent softness in underlying inflation.  

Then, when reflecting back on the    ADP report that came in with a  275k lift, which was well above expectations, if this is to be a prelude for Friday’s jobs data, then perhaps Powell’s assessment in the presser is what to run with for now … = dollar better bid and the less dirty  of dirty shirts.  

Currency action

Analysts at Westpac offered a snapshot of the main movers from overnight:

  • EUR/USD rose 20 pips on the ISM, another 20 pips to 1.1265 on the FOMC statement, then tumbled to 1.1190 on Powell’s comments.  
  • GBP/USD rallied to 1.3100 then slid to 1.3040/50.
  • USD/JPY is net unchanged on the day at 111.40 but traded a range of 111.05 to 111.61 on the Fed news.
  •  AUD/USD mostly ignored the ISM, popped up 15-20 pips to 0.7055 on the FOMC statement, then fell to a low of 0.7007 on Powell.  
  • NZD extended its fall on NZ jobs data to 0.6620, -0.8% over the day.  
  • AUD/NZD consolidated a 0.3% gain over the day, at 1.0590.

Key notes from overnight:

  • US: Markit Manufacturing PMI improves to 52.6 in April (final) from 52.4
  • Wall Street perturbed on Powell’s presser, not given the carrot bulls were looking for
  • Powell speech: Not seeing any signs of overheating at the moment
  • Powell speech: We don’t see a strong case for moving policy in either direction
  • FOMC monetary policy statement, May 1 – full text

Key events ahead:  

All eyes on the BoE:  BOE Preview: Can Carney crash cable by cutting forecasts? Or is the Brextension bullish?