Dollar Slips After Fed Forecasts Turn Slightly More Hawkish?
By John Kicklighter, Sr. Currency Strategist
- Dollar Slips after Fed Forecasts Turn Slightly More Hawkish?
- British Pound Resilient Despite Double Dip Recession
- New Zealand Dollar Advances after RBNZ’s Slightly More Dovish Tack
- Japanese Yen Gains Despite Positive Risk Sentiment
- Euro: ECB President Draghi Eases His Inflation Tone
- Canadian Dollar Looking to Capitalize on Break to 7-Month High
- Gold Recovers from Yet Another Early Fall Thanks to the Dollar
Dollar Slips after Fed Forecasts Turn Slightly More Hawkish?
When an asset or a market doesn’t falter on bearish news, it is often a sign of an overall bull market. But, what does it mean when the capital markets and dollar neither rise on bullish developments nor fall on the bearish? Heading into the top event risk of the past trading session – indisputably the Federal Open Market Committee (FOMC) rate decision – the dollar had working its way into a terminal congestion pattern. For the non-technical traders, that is a situation in which the market essentially have to pick a direction; and the inclusion of a major fundamental catalyst in the equation to instigate the move further leverages the expected fallout. And yet, the Dow Jones FXCM Dollar merely trickled outside of its tight range well after the data hit the wires. Even more remarkable against the outcome of the day’s fundamentals, it was a bearish move.
To appreciate why the S&P 500’s (my favored risk barometer) trek back up to the top of its 1395-1360 range as well as the US Dollar index’s stumble below 9900 was so unusual, we need to refer to the event risk over the past session. The Fed festivities came in three waves. First up, we had the rate decision and minutes. Holding the benchmark at the range up to 0.25 percent should surprise no one. However, for a market that has become quite adept at extracting the meaning behind every one of central bank’s punctuation marks, the slightly hawkish shift from the group statement didn’t require special interpretation. In addition to the ‘moderate’ growth outlook, the group dropped the phrase from its previous statement that inflation was “subdued in recent months”, instead saying it picked up somewhat.
Far more objective for the distant rate forecasters, the forecasts were supporting the hawks across the board. The 2012 GDP forecast was upgraded to a range of 2.4-2.9 percent versus the previous 2.2-2.7 percent projection alongside an improved 7.8-8.0 percent jobless rate outlook from 8.2-8.5 percent scope laid out in January. Those took the pressure off more stimulus, but what tips the scales to a slightly more hawkish stance was the upgraded inflation outlook (now 1.9-2.0 percent for the year versus 1.4-1.8 percent previously). Those market participants that simply will not give up their hope for stimulus could seek support in the third round of the Fed event: Chairman Bernanke’s press conference. He said the group remains “ prepared to do more ”, but it would be quite the stretch to see that as an active dovish position. From the market, the 12-month rate forecast jumped back up to its 9-month high, but neither the dollar nor Treasury yields would follow suit.