The US dollar was a big loser in the New York trading session as the FOMC statement doused expectations of rate hikes in the next few months. The Fed highlighted the downside risks stemming from weaker global economic growth, choosing to downgrade their inflation and GDP estimates for the year.
In addition, FOMC policymakers pointed out that business investment has been “soft” from their earlier assessment that it “has been increasing at a moderate pace.” According to Fed Chairperson Janet Yellen, the improvements in the labor market have a modest impact on inflation and that they have enough monetary policy tools at their disposal should additional stimulus be needed.
USDJPY fell to the 112.50 area after previously consolidating below 114.00, EURUSD zoomed up by roughly 200 pips to the 1.1250 level, GBPUSD popped higher to 1.4250, and USDCHF crashed to a low of .9751.
Commodity currencies advance on risk-taking, NZ GDP
In contrast, the commodity currencies were able to rake in gains across the board when risk appetite picked up. Businesses, consumers, and investors welcomed the possibility of lower borrowing costs for much longer, as this would give them access to cheaper credit.
AUDUSD broke above the .7400 barrier to a high of .7415, NZDUSD advanced past the .6700 mark, and USDCAD tested support at 1.3100. The US crude oil inventories report showed a smaller buildup in stockpiles of 1.3 million barrels compared to the estimated 2.9 million gain.
New Zealand reported a stronger than expected growth figure of 0.9% for the last quarter of 2015, outpacing the estimated 0.7% expansion and maintaining its pace of growth from Q3. The GDP components showed an increase in business services and retail trade while the agriculture sector posted declines due to slower cattle production.
GBP pairs under pressure, BOE and SNB next
The British pound was barely able to benefit from the stronger than expected UK jobs report, as traders are paring their positions ahead of today’s BOE statement. Claimant count fell by 18.8K in February, better than the projected 8.8K decline, while the average earnings index rose from 1.9% to 2.1% to reflect stronger wage growth.
Still, the BOE is expected to reiterate its downbeat outlook, reminding market watchers that they’re not likely to hike interest rates anytime soon. Meanwhile, the SNB could also adopt some dovishness of its own, trying to keep the franc weak against the euro even after the ECB already cut several interest rates and announced an expansion of their QE program last week.
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