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  • Forex today was centred around what the FOMC outcome might be and then subsequently, trading out of the US dollar on the fact.  
  • The DXY was punished on a dovish outcome from the Fed and dropped from above 96.50s and cut out a fresh low below the 28th Feb lows, losing the 96 handle for the first time since then.

Staying with the Fed, the fact that some participants have been looking for a slightly hawkish tilt to the dots only to find that the Fed doesn’t see a rate hike happening until sometime in 2020, markets unwound dollar positions and as the US 10 year yield dropped sharply to 2.52% from 2.59%, having traded as high as 2.61% pre Fed. At the same time, the Fed’s balance sheet run down will end in Sep and many did not expect such to happen as soon as that – GDP forecasts were also downgraded. Here are some of the key takeaways from the meeting which will likely to continue weighing on the greenback:  

The latest median Federal Reserve forecasts

  • 2019 GDP2.1%  vs 2.3% in Dec.
  • 2020 GDP 1.9% vs 2.0% in Dec.
  • 2021 GDP 1.8% vs 1.8% in Dec.

From the statement

Federal Reserve issues FOMC statement – March 20 – full text

  • On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 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 change.
  • The Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.
  • The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.  
  • In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

Meanwhile, we also had Brexit shenanigans all day that was topped off by a statement from PM May to the UK nation explaining that she has written to tusk to request an extension to the end of June but not further than that. This will be voted on in Brussels on Friday which will be a massive event for the pound which is currently trapped between headlights and on thin ice – for it only takes one EU member to veto PM May’s request  – meaning the UK could end up dropping out of the EU next Friday without a deal.  

NZ GDP data was the next thing in early Asia but there were no great shakes there, with the kiwi moving between 30 pips on the line data for Q/Q and a slight moss Y/Y – unlikely to make a cause for concern for the RBNZ  next week, likely to stay with its ‘watch and  wait’ stance.

Currency action:

Analysts at Westpac summed up the currency action in the G10s as follows:  

“EUR/USD jumped from 1.1355 to 1.1448 in response to the dovish Fed surprise, and then tapered off to 1.1420. USD/JPY fell from 111.50 to a low of 110.54. AUD/USD jumped from 0.7095 to 0.7150 then followed the fading US equity rally to 0.7115. NZD similarly jumped from 0.6845 to 0.6918 – a two-month high – then back to 0.6880. AUD/NZD was net flat over the day, at 1.0340, falling a little after the FOMC.

GBP was weakest in the G10, as the EU summit began with a review of Brexit, deciding that they would agree to extend the date of Brexit from 29 March to 30 June only if UK Parliament approves PM May’s plan. GBP/USD fell about -0.6% over the day, including a small bounce on the Fed.”

Key notes from U.S. session:

  • Wall Street ends mostly lower, despite dovish Fed, financials hurting on lower yields
  • Fed thinks it will not need to tighten any further in 2019 – Wells Fargo

Key events ahead:

The analysts at Westpac explained that markets now await Australia’s February labour force survey that is due at 11:30am Syd/8:30am Sing/HK. “In the minutes of the 5 March Board meeting, RBA members “observed that labour market conditions had continued to improve, despite a slowing in the momentum of output growth in the second half of 2018.” The RBA will not drop its upbeat view of the labour market simply on a softer reading today.”