Daily Market Pulse

FOMC remarks in line with market expectations

6 minute read


The U.S. dollar index, a composite that values the greenback against a basket of major currencies, fell 0.15% during yesterday's trading session following the press conference and monetary statement from the Chairman of the Federal Reserve, Jerome Powell, that concluded the Federal Open Market Committee (FOMC). Remarks from policymakers were very much in line with market expectations controlling the impact in the market. The spokesman announced that monetary policy will remain unchanged, as expected, and gracefully addressed the topic of tapering, saying that the committee would consider adjusting its purchasing programme in the coming meetings. However, policymakers continue to classify current inflationary pressures as transitory, and state that substantial further progress in the labour market still needs to be made before considering adjusting interest rates. Later today the market expects critical data, with Gross Domestic Product figures for Q2 expected to post an annualized growth of 8.6%, picking up from its previous release 6.4%. Additionally, continuing jobless claims will provide insight into the labour market while Core Personal Consumption Expenditure, the favourite gauge of inflation used by the Fed, is also due with an anticipated 5.2% quarterly growth, up from 2.5% in Q1. 


The common currency rallied 0.23% against the dollar following the dovish monetary policy statement from the Fed’s policymakers, reaching a two-week high for the European currency. Lower U.S. Treasury yields, following the Federal Open Market Committee, continue to weigh on the demand for dollars, which has made the EUR advance ahead of Consumer Confidence and Business Climate for the Eurozone, which is expected to release constructive results amid positive risk sentiment in the market. Additionally, the German preliminary Consumer Price Index and July Unemployment figures are expected to release 3.3% year over and 5.8% respectively and are likely to drive investor impetus during today’s trading session. 


The British Pound continues to extend gains against the greenback, closing 0.19% higher following the Federal Market Committee, and sustaining its gains during the early hours of today's trading session. A combination of dovish comments from Fed officials, and Covid reports showing daily infections dropping for the sixth consecutive straight day, continues to feed the momentum in cable which is close to reaching its one-month high. On the Brexit front, Brussels eases legal action against London over the Northern Ireland protocol following the latest intentions from David Frost, Brexit Minister, to renegotiate the Protocol. Today, the U.K enjoys a light economic calendar meaning that the main drivers for cable will come from growth figures in the U.S. and developments over the Covid crisis or Brexit. 


Amid restoring global sentiment and Bank of Japan summary of opinions, the Japanese Yen retraced 0.19% during yesterday's trading session. The U.S. Treasury Yields continue to edge lower, undermining the demand for dollars despite Jerome Powell hinting that progress had been made towards conditions to taper their asset purchasing program. The broader dollar weakness and a lack of worry from Chairman Powell in regards to Covid have induced market optimism which has also weighed on the Yen given its safe-haven appeal. Additionally, the international monetary fund cut its GDP forecast from 3.3% to 2.8% for 2021, while the Bank of Japan Summary of Opinion highlighted that given the COVID-19 outburst, downward pressure on consumption is likely to accelerate due to the reinstatement of the state of emergency.  


The Loonie rallied 0.64% following yesterday's Federal Open Market Committee and a broader risk-on sentiment in global markets. The U.S. policymakers have decided to hold any hawkish adjustments for the time being. However, Chairman Jerome Powell has flagged that much higher inflation figures would be a concern, and if that was the case the market would be free to become risk-on. Additionally, the dovish rhetoric suggests that further stimulus will still be deployed over markets which fueled confidence among market participants. The restoring risk sentiment aided West Texas Intermediate (WTI) Crude oil prices, which edged higher advancing 0.68% during yesterday's trading session, and is currently extending its gains amid a positive market mood. The Loonie, as commodities driven currency, rallies on the back of the WTI appreciation given its important export volume. 


The Mexican Peso benefited from the broader dollar weakness, closing 0.19% higher amid the Federal Open Market Committee (FOMC) remarks and constructive market sentiment. Moreover, rising coronavirus cases in Mexico continue to raise questions over school reopening after the Federal Health Ministry reported 17k daily new cases, the highest since January. Additionally, Mexico National Statistics Institute released its global economic activity indicators, a proxy of GDP, which reported that economic activity in Mexico grew over 25% annually in May. The report suggested that agriculture, industry, and services were the main drivers of this growth.  


The Onshore Yuan rallied 0.28% during yesterday's trading session and sustained momentum in the hourly hours of today, erasing losses recorded on Tuesday which originated from the regulatory crackdown in China. The sharp gains in CNY come off the back of the Fed’s relief that tapering is open for discussion in the upcoming meetings, although they failed to provide any clear timings on the matter hinting that policymakers have no rush to adjust stimulus. Moreover, the  People’s Bank of China added 30 billion yuan (4.6 billion) of liquidity into the financial system with the intention of restoring peace following the latest regulatory reforms in China which triggered a sell-off.  


The Brazilian Real rallied 1.06% against the greenback amid dovish Fed comments and risk-on sentiment in global markets. Despite increasing coronavirus cases, policymakers in the U.S. flagged that enough progress has been made to consider tapering stimulus programs but still ways off of adjusting interest rates. In contrast to the latest Brazil Central Bank interventions and their stance, market participants are pricing in an interest rate hike for the upcoming monetary policy meetings. As participants foresee a widening interest rate difference among both central banks, BRL benefits from upcoming expectations. On a political note, Ciro Nogueira has been named Chief of Staff in the Brazilian government, a move made by Bolsonaro in an attempt to reshuffle the cabinet in the interest of improving his popularity ahead of presidential elections next year. 


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