Article Highlights

  • FOMC hiked interest rates by 0.25% as expected
  • FOMC voting member Kashkari dissented from tightening
  • Fed dot plot still shows three interest rate hikes for this year
  • FOMC: Measures of business and consumer sentiment firmed somewhat
  • FOMC: Inflation moving close to 2% target
  • Yellen: Economic projections very little changed since December
  • Yellen: Outlook still uncertain, will adjust to changes in data and fiscal policy
  • New Zealand economy grew by 0.4% vs. 0.7% consensus in Q4
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Profit-taking was the name of the game in the U.S. session as the Greenback got heavily dumped even after the Fed hiked interest rates as expected.

Major Events:

Fed hiked interest rates to 0.75%-1.00% – As everyone and their momma expected, the U.S. central bank hiked interest rates by 0.25% to a range of 0.75% to 1.00% in their policy announcement. The decision wasn’t unanimous, though, as Fed official Kashkari dissented from tightening.

The official statement indicated that the Fed though that job market gains remained solid and that the unemployment rate was little changed in the past months, a slight change from their earlier statement that it remained near its recent low. It also assessed that business investment and measures of sentiment have firmed somewhat, after previously stating that these remained soft. They also removed the phrase on inflation being below their long-term 2% objective, citing that it is already moving close to target.

The committee assured that inflation will stabilize to 2% in the medium-term but noted that monetary policy will remain accommodative to support further gains in the labor market and a sustained return to 2% inflation. It concluded that the committee will continue to monitor actual and expected developments relative to its symmetric inflation goal.

Yellen’s presser – In her opening statement before the post-FOMC press conference, Yellen clarified that economic projections have been little changed since December. She added that core inflation has been little changed as well but that it is expected to rise in the coming months.

As in her previous speeches, the Fed head honcho also pointed out that waiting too long to tighten could mean a faster pace of rate hikes later on. However, she also mentioned that interest rates don’t need to rise “all that much” for the Fed to be in a neutral stance. Yellen also noted that their outlook is still highly uncertain and that they will be ready to adjust to data and policy changes.

When asked about fiscal policy reform by the Trump administration, Yellen responded that they won’t speculate on any moves since they will have enough time to react. She did say that she has only met a couple of times with Treasury Secretary Mnuchin and has briefly talked to the Donald.

Mixed U.S. reports – While the FOMC statement hogged the spotlight, Uncle Sam printed a few economic data points that had mixed results. Headline CPI came in at 0.1% instead of staying flat while core CPI met expectations of a 0.2% uptick.

Meanwhile, core retail sales rose 0.2% in February versus the estimated 0.1% increase while the headline figure fell short with a meager 0.1% uptick. The Empire State manufacturing index fell from 18.7 to 16.4 to reflect a slower pace of expansion, but this was still better than the projected 15.3 figure.

Major Market Movers:

USD –  Traders were in “buy the rumor, sell the news” mode after the FOMC statement, with some jumping out of their long dollar positions on less-hawkish-than-expected rhetoric.

EUR/USD popped up from a low of 1.0606 to a high of 1.0746, USD/JPY dropped from 114.82 to a low of 113.18, GBP/USD is up from the 1.2200 area to a high of 1.2294, and AUD/USD rallied from .7588 to a high of .7719.

Watch Out For:

  • 12:30 am GMT: Australian employment change (16.3K expected, 13.5K previous)
  • Tentative: BOJ monetary policy statement (See Forex Gump’s guide here!)

See also:

London Session Recap

Asian Session Recap

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