Fed ‘dovish hold’ & EUR/USD > 1.14 - DAILY MARKET UPDATE

FOMC Conclusions

The Fed saying it will “increase its holdings … over coming months at least at the current pace” was the key statement from today’s Fed meeting. The implication is that stimulus is here to stay over the next few months, even if market and economic conditions don’t really warrant it. 

The Fed tactfully avoided committing to any new policy changes – which wrong-footed us since we thought there would be some form of forward guidance introduced. The Fed said it “reviewed explicit use of formal guidance, asset purchase as well as experience of targeting the yield curve- and will continue discussions at upcoming meetings.

A good line from Chair Jerome Powell was that “We’re not even thinking about thinking about raising rates.” Naturally a rate hike is off the table for a while. To summarise the Fed has said it is “strongly committed to doing whatever we can for as long as it takes” – but while there is smooth sailing in markets, the conclusion appears to be that so far it’s doing enough. After a big run higher, it will be a test for stocks especially to keep pushing on without the promise of extra stimulus.
 

Dollar drops

The dollar dropped against major Asian FX including USD/CNY, USD/JPY and USD/SGD while European currencies rose including EUR/USD and GBP/USD, which took out 1.28 for the first time since March 11. They say “don’t fight the Fed” and the market is abiding by that rule for now – and the dollar is under pressure. 

Looking forward to later today, US jobless claims will be important to watch for near-term sentiment, especially after the optimism generate by last week’s non-farm payrolls surprise.