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A Closer Look At USD Fundamentals After The Central Bank Marathon

Today it´s been all about central bankers and it isn´t over yet. Tomorrow we have the RBNZ (Royal Bank Of New Zealand) interest rate statement which is supposed to offer forex traders some volatility in NZD pairs.

But at least it is over for today. The last part was made up of comments from FED members. The comments took a widely hawkish stance.

After Carney and Jordan (from the BOE and the SNB respectively), it was Evans turn. He´s a dove (tends to look at the glass as half empty) so his comment that he´s nervous about inflation even though he expects it to run higher, should be taken with a pinch of salt.

On the other hand, he acknowledged the better economic conditions, specifically employment. He also said that the FED “could go until December in regards to rate hikes”.

That seems a bit dovish because December seems far away, but rate hike odds for September are around 20%, which only leaves December as the only real option. Evans looks like he supports it, even though he´s a dove. So, that´s hawkish enough for me.  

Later on, Kaplan spoke with even more hawkish comments. There was a note of caution in his comments but overall they were hawkish. What stood out was the comment where he said that the FED “can´t wait for signs of over-heating inflation”.

Translated to normal rhetoric, it means that the FED should hike interest rates faster if inflation picks up. Inflation is not running wild at the moment, but the path of interest rate hikes is currently pretty steep. That means that if inflation picks up, the FED should accelerate the pace of rate hikes.

That´s what´s Kaplan is saying and that´s hawkish enough for me. So, it has been a hawkish afternoon for the Buck and the Buck has been advancing during this time.

I don´t know if these hawkish comments coming from the FED will be enough to turn this recent wave of USD weakness around. However, they´re piling up pretty quickly, so keep that in mind.

Things can accelerate quickly, particularly if we see a few positive data pieces coming from the US, but for now, we should be on the alert.

I would like another dip in USD, probably in USD/JPY so I could open a long term buy position. As I mentioned in the weekly review, I still hope we can see 110.20-30 soon, which offers a good enough risk/reward ratio.   


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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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