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Hawkish Fed Projections Unable To Curtail Overall Greenback Weakness

FOREX
  • The greenback weakened steadily throughout Wednesday in the lead up to the June FOMC decision. The sell-off had been exacerbated by the USD index breaching its 100-day moving average with initially buoyant global equity benchmarks underpinning the rally for other G10 currencies with particular outperformance amid high beta currencies such as AUD & NZD.
  • A surprisingly hawkish set of Fed projections to accompany the unchanged decision on rates boosted the greenback and saw the USD index recover the majority of these losses in the immediate aftermath.
  • However, with Chair Powell dismissing the ‘skip’ thesis and declaring that each meeting will be live going forward, the USD’s renewed support waned. As we approach the APAC crossover, the DXY sits around 0.25% lower on the session with antipodeans continuing to outperform.
  • GBPUSD has also posted a 0.4% advance, extending on an impressive rally Tuesday. Cable did pierce a key resistance point at 1.2680, the May 10 high. The next objective for the rally comes in at 1.2759, the 61.8% retracement of the Jun - Sep bear leg.
  • In emerging markets, local currencies have benefitted from the greenback weakness and the consolidation of strength for major equity benchmarks. ZAR and PLN were standout performers as well as MXN and BRL continuing their impressive recent runs higher.
  • With the Fed out of the way, the central bank focus turns to Europe, with Thursday’s ECB meeting expecting rates to be increased by 25bps. On the data front, New Zealand GDP and Australia employment kick off the APAC docket, before China releases a host of production/activity data. US retail sales, Philly Fed and initial jobless claims will also hit the wires.
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