USD Slammed, Dovish Central Banks Out in Force - US Market Open

2018-12-20 14:35:00

MARKET DEVELOPMENT – USD Drops Post FOMC Meeting

USD: The US Dollar decline has shown little signs of abating with the move exacerbated by yesterday’s Fed decision. While the USD had seen an initial move post the release, gains had been quickly pared throughout the European morning, given that the Fed had ultimately provided a dovish rate hike. The Fed Funds rate had increased by 25bps, as widely expected. Although, policymakers reduced the number of rate hikes they see in 2019 via dot plot projections (2 vs. Prev. 3), while also downgrading their inflation and growth forecasts. However, one hawkish element to the statement had been that the Fed did not completely drop the guidance surrounding “further gradual increases” and instead provided a slight tweak to “some gradual increases”, providing a dent to risk assets. That said, with the Fed increasingly data dependent, today’s weak Philly Fed Business index will provide some further discomfort over a slowdown in the US.

SEK: The Riksbank had surprised market participants by providing a rate hike for the first time since 2011, raising the repo rate by 25bps. Consequently, the SEK had surged following the decision, however, gains had been pared slightly after the central bank lowered the rate path, implying a one and done for the Riksbank.

GBP: The Pound saw a brief move above 1.27 after strong November UK retail sales, which had benefitted from the black Friday sales. However, gains had been faded slightly, following the latest BoE rate decision, in which the central bank had provided a relatively downbeat assessment on UK growth and inflation, while Brexit uncertainty continues to keep the BoE on the sidelines.