Dollar Higher After Fed Sticks to it’s Guns

We saw the dollar rally and US Treasuries fall after the Federal Reserve left interest rates unchanged following a two-day policy meeting, but signalled that a further rise in short-term borrowing costs was still possible this year despite inflation remaining below the 2% goal. Traders were concerned that the impact of Hurricanes Harvey and Irma might have held the FOMC back a bit which could have led to a more conciliatory statement and further pressure on the dollar. They also confirmed that they will begin to reduce the $4.5 trillion balance sheet from October by allowing some treasuries and mortgage backed securities to run off. Of further interest is that they see a further 4 hikes by the end of 2018 with the market currently only pricing in 1.5 – this will give the long term bulls more heart.

This all added up to a higher dollar against all the majors with the Dxy up 0.75% by the end of the day, we had earlier seen the dollar retreat before the announcement as traders squared up some positions.

Looking ahead to today’s trading and we should see traders continue to jump on the bandwagon and look for levels to buy dollars, however, we do have another big central bank announcement ahead that will become a focus as we move through the Asian session with the BOJ due this afternoon. Once again there is no change expected but traders will be looking at the statement and the press conference to see if there are any more positive signs out of the bank.

It’s a very quiet night in the London session, although we do hear from ECB President Draghi later in the night and we have the weekly US unemployment data out in the New York time zone.

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