- FOMC meeting less hawkish than expected
- BoE hikes rates and GBPUSD sinks
- US dollar sinks following FOMC meeting
USDCAD Snapshot: open 1.2742-46, overnight range 1.2715-1.2763, previous close 1.2737, WTI open $107.93, Gold open $1,897.70
The Canadian dollar soared in the wake of the FOMC meeting yesterday and extended the gains overnight.
The FOMC hiked interest rates 0.50% and announced details of its balance sheet reduction plan. The news was expected but still managed to catch a few traders off-guard.
Prior to the meeting, a gaggle of Fed-officials spoke about the Fed’s need to be aggressive in order to tame inflation. St Louis Fed President James Bullard was one of them. He spoke about the need to raise rates to 3.5% by year end (they are 0.75-1.0% as of yesterday), and said he wouldn’t rule out 0.75% increases.
Traders, being traders, took his words to heart and bought US dollars against the major G-10 currencies including the Canadian dollar.
USDCAD climbed from 1.2454 on April 21 to 1.2910 on May 2, before drifting to 1.2850 ahead of the FOMC meeting.
Fed Chair Jerome Powell does not agree with Mr Bullard’s call for 0.75% rate increases. In fact, he dismissed the notion outright, saying, “A 75-basis-point increase is not something the committee is actively considering.”
That comment sent the greenback into free-fall, boosted commodity prices, and sparked a sharp rally on Wall Street. The Dow Jones Industrial Average closed with a gain 2.8% gain while the S&P 500 rose 2.99%.
The stock market rally is continuing in Europe. The German Dax and French CAC indexes are 1.55% and 1.86% higher. However, profit-taking appears to have driven S&P 500 futures down 0.60% ahead of the Wall Street open.
The Bank of England took a more cautious approach to fighting inflation than the Fed. UK inflation was 7.0% in March compared to the BoE target of 2.0%. Even so, the BoE only raised rates 0.25% at today’s meeting, taking the bank rate to 1.0%.
GBPUSD traders were not impressed. GBPUSD plunged from a post Fed peak of 1.2635 to 1.2388 following the BoE news.
EURUSD spiked to 1.0630 from 1.0520 in the immediate aftermath of the FOMC then consolidated in a 1.0583-1.0641 range overnight.
USDJPY jumped to 130.33 on the Fed announcement, then plunged to 128.70 moments later as prices tracked US 10-year Treasury yield swings.
AUDUSD and NZDUSD rallied after the Fed due to improved risk sentiment and higher commodity prices.
US weekly jobless claims are expected at 182,000.
