Forex Today: Fed Makes Hawkish Pause

As expected, the US Federal Reserve did not hike its interest rate yesterday but pointed to further hikes over the near-term in its statement.

1. The Federal Reserve surprised almost nobody yesterday when it announced that it would pause rate hikes for the first time in many months. However, the pause is seen as a bit hawkish as Fed Chair Powell emphasized the Fed’s strong commitment to 2% inflation, stated that inflation continues to run high, and that the fight against it has a long way to go. Powell said that further hikes later this year will be seen as appropriate, signalling that the terminal rate within the current tightening cycle has not yet been reached.
2. Markets reacted to the Fed’s hawkish pause by selling the US Dollar and buying stocks, pushing the the NASDAQ 100 Index and the S&P 500 Index to new 1-year high prices. Major Chinese and Japanese indices also rose, with the Nikkei 225 Index rising again to reach a new multi-year high price.
3. Markets are now awaiting policy meetings from the European Central Bank (today) and the Bank of Japan (tomorrow).
4. In the Forex market, the US Dollar is rising again, recovering its losses from yesterday, against its long-term trend bearish trend. Over the medium term, the British Pound has been the strongest currency, and the US Dollar the weakest. Trend traders will still be looking for long trades in the USD/JPY currency pair which broke to a new 7-month high above ¥141, while the GBP/USD currency pair also made a new 1-year high price yesterday. The Australian Dollar is also relatively strong. Over today’s Asian session, the US Dollar is the strongest major currency, while the Japanese Yen is the weakest. Yen weakness is a notable feature of the Forex market today, as markets focus on the Bank of Japan’s policy meeting tomorrow and its strong focus on monetary easing which is highly divergent to other major central banks.
5. Cocoa futures rose again yesterday, to reach another 7-year high closing price.
6. There will be releases later today of US Retail Sales and Unemployment Claims data.