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US Dollar Gains But Doesn’t Break Out On Fed Hold, June Expectations Soar

US Dollar Gains But Doesn’t Break Out On Fed Hold, June Expectations Soar

John Kicklighter, Christian Lewis,

Talking Points:

  • Fed held its benchmark interest rate at 0.75-1.00% as expected
  • The FOMC made note of the slowdown in growth but labeled it ‘transitory’
  • Front-end bond yields rose with currency, speculation of a June hike rose to 94%

See how retail traders are positioning in the majors using the IG Client Sentiment readings on the Daily FX sentiment page.

The US Dollar received a modest boost after the FOMC held its benchmark interest rate at 0.75-1.00% - as expected – as rhetoric nevertheless leveraged expectations of a hike at the June meeting. While the group did make mention of slow growth did slow through the first period, officials had found the slowing met their expectations, and believed that the slump would be temporary. In the FOMC’s statement, it further noted that the labor market remained on solid footing, and household spending rose modestly even as growth in economic activity slowed.

With today’s release, the Fed appears to be holding to their gradual rate-hike pace - which has shown through their own SEP forecasts as recently as March another 50bps by the end of 2017. With the market’s slight reaction, it appears the status quo may not have the power to create major moves for the world’s most liquid currency – much less for the more complacent, risk-leaning local assets such as US shares. However, front-end bold yields rose along with the currency, implying market speculation is firming up behind a June hike. Looking at Fed Fund futures (a product used to hedge against expected interest rate changes in the future – the probability of a rate hike at the June 15th FOMC meeting has increased to a 94% probability.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.