USA dollar falls amid rising euro, Fed's dovish stance on rate hikes

USA dollar falls amid rising euro, Fed's dovish stance on rate hikes

USA dollar falls amid rising euro, Fed's dovish stance on rate hikes

So in the end - anyone who wanted the FED to issue a dovish statement - got what they wished for.and while it appears as if the move suggests that the USA is faltering - we would argue that the earnings reports and the macro data in the U.S. negate that argument.but I do think that he (jay Powell) is concerned about the ongoing trade dispute with China and slowing or stagnating growth in Europe. "If we saw another couple of employment reports like that, I'd expect some backing off from the "patient" language for sure". Her we will explain the most important of those economic events and how they might affect the US Dollar.

The Fed said it would pause its 3-year interest rate rise campaign while assessing the weakening of the economy. The U.S. central bank signaled that its drive to tighten monetary policy, which started late in 2015, may be at an end and said it would pause before raising rates further.

Part of the reason consensus do not believe the Fed will raise interest rates is because it is simultaneously carrying out quantitative tightening, a process by which the Fed stops reinvesting the principal it earns from the maturing bonds it bought during its programme of quantitative easing (QE).

At the December 18-19 policy meeting, Fed officials felt rates could climb still higher in 2019, a sign of economic health that would show concerns about long-term "secular stagnation" to be unfounded, and mark a return to normal times - with savers perhaps even earning some return on their bank deposits.

Central banks hold rates steady to not kindle inflation and help support a moderately performing economy - they cut them when they see growth slowing and inflation and costs weakening. The Brexit situation has become even more perplexing following the developments in the UK House of Commons, subjecting GBP to even more uncertainty and headline risk.

This decision by the Fed was large what Wall Street expected, and the Street reacted favorably with a welcome surge in stocks. But the Fed now thinks it has started the new year in a lower gear and doesn't need another rate increase.

Powell's extraordinary statement again reaffirmed the Fed's independence from presidential control. Powell confirmed it himself in the December conference that the global economy has weakened considerably in the recent several months and that is starting to give signs of weakness to the U.S. economy, which might increase this year. Two more rate hikes had previously been penciled in for the year.

Higher interest rates tend to push up the value of the Dollar because they attract and keep more foreign capital from investors drawn to the promise of higher returns.

"I don't think they are necessarily done with this rate hike cycle", English said. It will also be of interest for traders to see what's the outlook of the FED for the economy as of now, after having seen some signs of weakness indeed, such as the decline in the consumer sentiment on Tuesday to the lowest in more than a year.

US stocks were also expected to open higher later after the Fed's boost had dovetailed with reassuring tech earnings on Wednesday, and with Amazon due to report later. That was nearly twice of the number expected.

The greenback did shoot higher after the release of strong job gains, but quickly got back to its levels before the data, with analysts citing the average hourly earnings figure, which rose just 0.1 percent, compared with expectations for a 0.3 percent. Sure - the rally in risk assets may represent an offsetting force for yen appreciation, but we believe that the downside pressure on United States yields will more than counterbalance this: correlations between USDJPY and risk assets (MSCI World Equity Index) have been falling recently, while those between the currency pair and U.S. yields have remained exceptionally high. Although, today the pace of growth of new jobs outside of the farming sector is expected to fall back to 165k for January.

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