The dollar weakened to 2-month lows after Powell’s comments.

The Federal Reserve statement met expectations while Chair Powell maintained a dovish stance, reiterating it was not time to discuss tapering.

US yields moved slightly lower following Powell’s comments. Overall risk conditions were solid rather than euphoric, but risk assets posted net gains. Wall Street equities posted slight gains with stronger gains in futures on Thursday after tech-sector results.

The dollar weakened to 2-month lows after Powell’s comments. EUR/USD moved above 1.2100 and hit 2-month highs at 1.2150 before a correction. Sterling overall was held in tight ranges with dollar weakness edging GBP/USD above 1.3950. Commodity currencies posted further gains with USD/CAD dipping to 36- month lows.

Narrow ranges prevailed ahead of Wednesday’s New York open with notable caution ahead of the Federal Reserve policy statement and the Euro held close to 1.2075 with other asset classes also unable to make significant headway. The dollar edged lower into the Fed announcement, although EUR/USD was capped around 1.2100.

The Federal Reserve held interest rates at 0.25% following the latest meeting and also made no changes to the asset-purchase programme. Both decisions were in line with consensus forecasts and the votes were unanimous.

According to the statement the coronavirus pandemic is causing tremendous hardship across the US and world. It did, however, add that indicators of economic activity and employment have strengthened amid vaccination progress and strong policy support. Sectors most adversely affected by the pandemic have shown improvement.

It added that inflation has risen, largely due to transitory factors with confidence that inflation could be kept under control over the medium term.

The committee reiterated its aim to secure inflation moderately above 2.0% for some time to achieve the longer-term average target of 2.0%.

Reaction to the statement was muted with EUR/USD just below 1.2100 against the US dollar despite slightly more positive rhetoric.

Chair Powell stated that a transitory increase in rates this year would not meet the criteria for raising interest rates and that the economy is a long way from its goals while near-zero interest rates remain appropriate until these targets are met. He added that it is not time to talk about tapering yet and that it is doubtful whether there will be a substantial increase in inflation while slack remains in the labour market.

The dollar dipped lower following Powell’s dovish comments with EUR/USD highs around 1.2135. The US dollar remained vulnerable on Thursday amid expectations of sustained negative real rates, although it did recover slightly from two-month lows.

The latest GDP data will be released on Thursday with position adjustment also potentially important as the Euro traded around 1.2130 from 2-month highs at 1.2150.

US bond yields edged higher into the New York open with the 10-year rate around 1.63% which underpinned the dollar, although USD/JPY was unable to sustain a brief move above the 109.0 level while equity futures traded in very tight ranges.

The US goods trade deficit widened to $90.6bn for March from $87.1bn the previous month with a sharp monthly increase in exports offset by an even larger expansion in imports. The data failed to inject any momentum into currency markets, although the widening deficit is likely to trigger some alarms over the US deficit, especially with domestic demand increasing rapidly which will maintain strong demand for imports. The dollar will be vulnerable on deficit concerns over the medium term.

US yields moved lower following the Fed statement and dovish rhetoric from Powell with USD/JPY retreating to around 108.60.

Equity markets reacted favourably to President Biden’s speech on infrastructure spending and taxation with the Apple results also received well. US yields failed to recover, however, and USD/JPY was held around 108.65 after finding support just below 108.50 with EUR/JPY around 131.75.

Ahead of the US open, the UK Electoral Commission stated that it would investigate Prime Minister Johnson’s refurbishment of Downing Street amid allegations that an offence was committed.  The overall impact was limited, but political uncertainty had some impact in curbing immediate demand for the UK currency and there was further selling interest on approach to 1.3900 against the dollar.

The currency was also hampered by concerns over next week’s Scottish elections. Overall tight ranges prevailed with GBP/EUR settling just above 1.1480.

Sterling did post an advance against the dollar following the Fed meeting, but it under-performed relative to commodity currencies with little net change against the Euro. Solid risk conditions provided some support for the UK currency with a GBP/USD move to around 1.3950 on Thursday while GBP/EUR held just above 1.1480

Economic Calendar

10:00Euro-Zone Consumer Confidence(APR)-10.8-10.8
13:00Germany Harmonised CPI (M/M)(APR)0.50%0.50%
13:00Germany Harmonised CPI (Y/Y)(APR)2.00%2.00%
13:00Germany CPI (Y/Y)(APR)1.70%
13:00Germany CPI (M/M)(APR)0.50%
13:00USD GDP (Annualized)4.00%4.30%
13:00USD GDP Price Index (Q/Q)1.90%
13:00USD Initial Jobless Claims549K547K
13:00USD Continuing Jobless Claims3674K
15:00USD Pending Home Sales (M/M)(MAR)-2.90%-10.60%
15:00USD Pending Home Sales (Y/Y)(MAR, 2020)110.30%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.