The Greenback is turning in a mixed performance this week (as of 6:00 pm GMT). The Greenback is a net loser, though, so the Greenback’s five-week winning streak will soon be coming to an end.
The Greenback showed weakness early on (except against the Loonie). And while there were no direct catalysts for the Greenback’s weakness, market analysts were pretty much of one mind in blaming the Greenback’s slide on skittishness ahead of the FOMC statement amid expectations that the Fed will deliver a dovish hike.
And the same theme was still in play on Tuesday. However, fears of a possible U.S. government shutdown may have already been weighing on the Greenback early on since the Greenback caught a bid during Tuesday’s U.S. session when the Washington Post reported that White House Press Secretary Sarah Sanders suggested that Trump may back down from demanding funding for the Great Wall of American when she said that:
“We have other ways that we can get to that $5 billion.”
“At the end of the day we don’t want to shut down the government, we want to shut down the border.”
Unfortunately for the Greenback, the FOMC statement was looming over the horizon, so the would-be rally was cut short and USD pairs ended up trading sideways with a downward tilt.
And when the Fed finally announced its monetary policy decision during Wednesday’s U.S. session, the Greenback’s initial reaction was to jump higher across the board.
The rate hike and downgrades for the inflation and growth projections were all widely expected. And since the Greenback was broadly weaker in the run-up to the FOMC statement, it’s likely that the Greenback’s jump may have been due to short-covering.
However, it’s also probable that fresh USD bulls attacked. After all, the Fed’s forecast of two more hikes in 2019, while one hike less compared to Fed’s forecast during the September FOMC statement, is not really widely expected.
“[T]he CME Group’s FedWatch Tool was showing that the market thinks that there’s only a 41.4% probability of ONE more rate hike by the December 2019 FOMC statement and a 58.6% probability that the Fed will not hike throughout 2019.”
The Fed’s forecast of two more hikes in 2019 was therefore a hawkish forward guidance relative to expectations for one or none at all.
Also, the Fed maintained its “roughly balanced” outlook and Fed Chair Powell didn’t sound as dovish-as-expected. Powell even said during the presser that:
“Policy does not need to be accommodative.”
Anyhow, follow-through buying was only limited. And by the time Thursday’s morning London session rolled around, it was clear that the Greenback was taking a beating.
Chinese Commerce Ministry spokesman Gao Feng said back then that trade talks are progressing well and that:
“The two sides will arrange consultations including meetings and calls at any time as needed to promote the implementation of the consensus of the heads of state.”
And that likely helped to ease trade-related fears and weighed down on the Greenback. However, the Greenback was already taking hits before Gao Feng even got to speak.
There were no direct catalysts for that bout of USD weakness, but market analysts were pointing to growing concerns that the Fed’s plan to keep hiking amid fears of a recession may become a self-fulfilling prophecy.
The Greenback would later get a chance to lick its wounds during Thursday’s U.S. session, likely because of renewed trade war fears due to rumors that the U.S. Department of Justice (DOJ) was planning to indict two Chinese hackers who are allegedly linked to the Chinese government.
But when the DOJ later confirmed those rumors, the Greenback began to encounter sellers, probably because of a “buy the rumor, sell the news.”
Two Chinese Hackers Associated With the Ministry of State Security Charged with Global Computer Intrusion Campaigns Targeting Intellectual Property and Confidential Business Information https://t.co/bRQPQE02Dx pic.twitter.com/jz7Dzy6ExR
— Justice Department (@TheJusticeDept) December 20, 2018
However, fears of a potential U.S. government shutdown also got revived during the session, which likely weighed on the Greenback as well.
In any case, selling pressure was only limited and USD pairs eventually began trading sideways.
However, buyers returned during Friday’s London session, even though a U.S. government shutdown was still possible.
There was no apparent reason for the Greenback’s rise but it seems like the Greenback was feeding mainly off the euro’s weakness at the time. Other market analysts were saying the same thing.
Nevertheless, the majority of USD pairs were not able to recover from the Greenback’s weakness in the run-up to the FOMC statement, so the Greenback is on track for a net loss this week.