US Dollar Tanks After Not-Henious Enough Fed Hike, Bank of England Considers Lift

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US Dollar, DXY, FED, FOMC, AUD, GBP, BoE, Crude Oil – Talking Points

  • The US dollar is under pressure after the Fed reigns on expectations
  • Stocks, bonds and commodities all gained as fallout continues
  • With the Fed decision out of the way, The USD resumes its bullish trend?

The US Dollar sold off sharply following the Federal Reserve’s 50 basis point (bp) hike yesterday. Stocks and bonds rallied while commodities generally got a slight boost.

The Fed has watered hopes of a 75 basis point hike anytime soon. The market interpreted this as the central bank not being as hawkish as it had expected. The Fed has announced its intention to sell Treasuries and mortgage-backed securities (MBS) accumulated throughout the pandemic stimulus.

Federal Reserve Chairman Jerome Powell said a 75bp move is not something the Federal Open Market Committee (FOMC) is actively considering.

In currency land, the Australian dollar was the biggest beneficiary of US dollar weakness after the RBA rose 25bps on Tuesday. It rebounded more than 2% to trade just below 0.7250.

The Pound lost ground in Asia today ahead of the Bank of England rate decision. The market is pricing in a 25 basis point rise there and the market will be looking for indications of a reduction in the bank’s balance sheet.

Wall Street posted strong gains with the Nasdaq leading the way, up 3.19% in the spot session. Futures markets point to a steady start for North American exchanges today. APAC stock markets that were open saw only modest gains. Japan and Korea are on vacation.

As bonds rallied, their yields collapsed, with the 2-year portion of the Treasury curve bearing the brunt of the Fed’s decision, down 14 basis points to near 2, 65%.

Falling yields allowed gold to jump above US$1,900 for the first time this week. Crude Oil also rose, boosted by EU announcements imposing new restrictions on Russian oil.

Following the Bank of England’s rate decision, US employment data will be released and OPEC will hold its regular meeting.

The full economic calendar can be viewed here.

Technical Analysis of the US Dollar Index (DXY)

The US dollar index hit a 20-year high last week but has now pulled back and is trading below the 10-day threshold simple moving average (SMA). This could suggest that the short-term momentum is pausing.

The recent high and January 2017 high of 103.93 and 103.82 respectively, may offer resistance.

On the downside, pivot points at 100.93 and 100.55 may provide support. Lower, previous lows of 99.81 and 99.57 may also provide support.

Chart vscreated in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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