Yesterday, the Fed raised interest rates as was widely anticipated, but continued signaling three hikes for this year, disappointing those expecting a 4th hike from the 2018 dots. As for today, the central bank torch is passed to the BoE. The Bank is expected to stand pat, so the focus will be on whether officials will sound hawkish again.
FOMC Raises Interest Rates, but the Dots Disappoint
The dollar tumbled against all the other G10 currencies on Wednesday following the FOMC decision. The main gainers were GBP, CAD and NZD in that order. The NZD stayed strong against the dollar as it did not respond to the RBNZ decision. The Bank remained on hold as expected and proceeded with very little changes in the accompanying statement. It acknowledged the weakness in GDP for Q4 but maintained the view that growth is expected to strengthen.
The FOMC decided to raise its interest rates by 25bps yesterday, as was widely anticipated, while in the statement accompanying the decision it added the sentence saying that “the economic outlook has strengthened in recent months”. However, the market mover was the updated “dot plot”. In line with our expectations, the Committee maintained unchanged the dots for 2018, signaling that the number of rate hikes throughout the year will be 3 (yesterday’s and two more), and revised up its projections for 2019. Now officials see 3 hikes in 2019 compared to 2 previously. The “dots” may have come as a disappointment to those expecting a 4th hike from the 2018 dots, and that’s likely the reason behind the greenback’s tumble.
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