Über-dovish Fed

3 minute read


As far as global profile was concerned, there was nothing yesterday to touch the Federal Open Market Committee's policy decision and Chairman Jay Powell's forensic demolition of any remaining expectation of higher interest rates. That the USD was not the worst-performing major currency was entirely down to the GBP putting in an even worse run.

As was the case a fortnight back with the European Central Bank, the Fed managed to out-dove the already dovish expectations of investors. Growth forecasts were lowered from 2.3% to 2.1% for this year and from 2% to 1.9% in 2020. Everything said and written pointed to no rate increase this year, to the extent that investors now see almost a 50/50 chance of a cut in the next 12 months. Mr Powell is still "very positive" about the economy and thinks it is "in a good place". He evidently wants to avoid making it less good as a result of Fed policy.


The euro was content to sit back and mop up the goodies handed to it by the floundering USD and GBP. It did not have a hugely profitable day - 0.5% against the USD - but the gains required minimal effort on the EUR's part.  

That was just as well. There were no Euroland economic data on this morning's list. All that appeared was the ECB's monthly Economic Bulletin, and it did not add much to the debate. It noted that the policy decision earlier this month was aimed at pursuing its target of just-under-2% inflation and, because the bank expects an appreciable slowdown in growth, it sees no undue upward pressure on inflation. 


The correlation between oil prices and the CAD was not at its strongest on Wednesday but it was still evident. Although the Loonie lagged WTI crude it nevertheless mostly followed the same direction of ups and downs. It is firmer by 0.2% on the day.

With no Canadian economic data on display it was the US Fed's monetary policy statement that had the most impact. Tomorrow brings what could be significant retail sales and inflation data. But that is tomorrow.


Brexit again. The two key stories on Wednesday were that Britain's  prime minster requested a three-month delay for the country's departure from the EU and that she went on public TV to harangue parliament for not bending to her will. The first forced investors to wonder what the advantage of a three month delay - after three years of negotiations - might be. The second made them doubt that criticising members of parliament would make them more inclined to support her in what promises to be a third vote on her withdrawal bill next week.

There is no point in speculating how the Brexit debacle will end. The next eight days could throw up any of half a dozen outcomes. But the mood among investors yesterday, and indeed today, is that the prime minister is not inclined to put her effort into avoiding a no-deal Brexit. Sterling is 0.4% lower.


Japan is on holiday today, celebrating the vernal equinox. There were thus no Japanese economic data overnight.

The JPY is nevertheless 0.5% higher against the USD, thanks entirely to the Fed's dovish stance. Look out tonight for the Japanese inflation data, and for the preliminary manufacturing purchasing managers' index.  

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