31st January 2019 - The Fed cautiousness sent USD down

Walid Salah Eldin

Master Trader
Feb 15, 2016
USD is still unable to get back some of what it lost yesterday, as The Fed was pretty softer than expected!

Following a series of dovish comments from the committee members, the FOMC raised the market speculations of reaching the roof of this tightening cycle currently.

As The FOMC finally omitted from its released economic statement that some further gradual increases would be warranted placing that the Fed would be patient in evaluating the health of the economy.

The committee said also it is prepared to slow or even reverse the steady course of selling of its held portfolio of Treasuries and mortgage bonds which has been uploaded during the credit crisis for propping up the economy.

The Fed's economic assessment clarified its current worries about sluggish inflation in US which has consistently fallen below its 2% yearly goal. The Fed Chief said it clearly during the press conference following the FOMC meeting that any future rate hike will depend on the inflation.

The Fed said also it is worried about the impact of the slowing growth in Europe and China and also the political conflict in US which can lead to another governmental shutdown.

Powell said economic expansion in US remains solid and the weak the inflationary pressure gives The Fed the luxury of patience before deciding whether or not it is to raise rates as the case for raising rates has weakened somewhat.

Powell added that he think that The Fed has raised the Fed Fund rate to an appropriate level for the state of the economy and it has not over-tightened it.

The committee direction to adopt a patience stance drove the interest rate outlook down bolstering demand for equities and commodities and also energy which has been already boosted by announcing US sanctions against PDVSA for putting more pressure on Venezuela’s president Nicolas Maduro.

While USD was suffering versus its rivals, as it became less attractive amid lower UST yields pushed EURUSD up regaining 1.15 psychological after it has been depressed by The ECB president hinted that the risks surrounding the EU growth outlook have moved to the downside.

GBPUSD rose also for trading near 1.3125, despite the Brexit worries which persisted by The EC President Donald Tusk's confirmation on what is already widely known that the Irish backstop is a part of the withdrawal deal and it is not up for renegotiations.

UST 10yr yield is still standing near 2.68% following yesterday slide from 2.73% on the Fed's explicit cautiousness which has been welcomed by Trump who praised Dow rising back above 25000 Psychological level.

The demand for precious metals rose to send Gold up for trading close to $1320 per ounce and palladium to trade again above $1360 per ounce, after correction to $1306.98 followed scoring new all time high at $1436.94 per ounce on this Jan. 17.

God willing, The market sentiment is expected be contained next by the outcome of the running trade talks between US and China which have been tempered by US allegation of Huawei as a stealer of trade secrets from an its US rival Apple and violator of the US sanctions against Iran.

While the investors are anxiously waiting for the release of January PMI manufacturing figures of The G7 countries and Jan US labor report, after Jan US ADP has shown adding of 213k of jobs beating 178k median forecast, following gaining of 271k in December has been revised down yesterday to 263k.

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din