FED & USD – What Happened Yesterday?

Posted Thursday, March 16, 2017 by
Skerdian Meta • 2 min read

Yesterday was a big day for the FED. Actually, the FED and Yellen seemed pretty relaxed. It was the market that was feeling agitated.    

So, what happened? The FED hiked the interest rates by 25 basis points. It wasn´t really a surprise because everyone in their right mind knew it was coming.

The question though remained within the FOMC statement and the following statement from Janet Yellen. How is the rate hike path for this year going to look like after yesterday´s hike? That´s what everyone was (and still is) trying to figure out.

Well, the FED hiked and the Buck got hurt, we know that. As my colleague Ron mentioned in the morning brief, this was more like a “buy the rumour, sell the fact” thing. Forex traders were waiting for the FED to be out of their way, so once the rate hike was announced, they jumped in and pushed the Dollar about 100 pips higher.

Then, we saw it stalling for a short period since Yellen was speaking at the press conference. The focus obviously turned to her comments, but her comments were pretty much the same as in the last FED meeting.

They acknowledge that the US and global economy are doing well and that everything is smooth, but at the end of the day, the FED would be happy to go as the economic data comes.

The US economic data has been pretty upbeat in the recent months, so I suppose the forex market was expecting a firm commitment from the FED to hike rates and probably come out with a rate hike timetable.

But that will never happen in forex. The central bankers always leave the fire escape door open, just in case everything falls apart. So that´s what the FED did. They left rate hikes attached to the economic data which wasn´t as hawkish as the market was expecting, which means it must be dovish for the market.    

The July rate hikes remained unchanged at around 50% and the Buck remains on the back foot this morning. That´s one of the reasons we just opened a sell forex signal in USD/JPY.

By the way, this USD move opens the door for some long term USD positions, so consider selling EUR/USD or GBP/USD for a long term trade. Maybe not right now, but soon, because I think that this latest USD dumping won´t last long.  

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