Dollar Edges Up; Fed Indicates No Rate Hikes in 2019
The dollar recovered on Thursday in Asia, after falling the previous day, as the U.S. Federal Reserve surprised markets by announcing there will be no more rate hikes in 2019.
The Fed flagged slowing global and domestic growth as it left its benchmark rate in a range of 2.25% to 2.5%. The central bank then signalled that it would continue to keep rate hikes off the table for the remainder of the year.
The news sent the U.S. Dollar Index lower against a basket of other currencies overnight. The index clawed back some of its losses today and gained 0.2% to 95.382 by 11:30 PM ET (03:30 GMT).
The central bank also trimmed its forecasts for economic growth and inflation.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the Fed said in a statement.
The statement contrasted with its stance three months ago, when it projected two interest rate hikes for this year.
“The more cautious tone and downgraded U.S. economic outlook will limit dollar upside,” said CBA senior currency strategist Joseph Capurso in a Reuters report.
“However, with similarly soft economic growth outlooks elsewhere including Europe, China, Australia and Japan it is questionable whether the dollar will depreciate to any significant extent.”
The dollar was also supported by a plunge in the pound amid the fears the U.K. could crash out EU without a deal on March 29 after The EU reportedly said it would only agree to a short delay to Brexit if U.K. lawmakers back Prime Minister Theresa May’s withdrawal agreement next week.
On Wednesday, May urged lawmakers, who have twice previously rejected her plan, to back her now.
“I passionately hope that (lawmakers) will find a way to back the deal I have negotiated with the EU, a deal that delivers on the referendum and is the very best deal negotiable, and I will continue to work night and day to secure the support” for the deal,” May said in a statement.
“But I am not prepared to delay Brexit any further than the 30th of June,” she said.
When are the UK retail sales and how could they affect GBP/USD?
The UK retail sales, scheduled to be published later this session at 0930 GMT, are expected to drop 0.4% m/m in February, following the sharp rebound of 1.0% seen in January. Total retail sales are seen arriving at 3.3% over the year in the reported month, down from 4.2% booked previously.
Meanwhile, core retail sales, stripping the basket off motor fuel sales, are seen bouncing 0.2% m/m while rising 3.0% y/y.
Deviation impact on GBP/USD
Readers can find FX Street’s proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 10 and 70 pips in deviations up to 3.5 to -1.5, although in some cases, if notable enough, can fuel movements of up to 100 pips.
How could it affect GBP/USD?
FXStreet’s Analyst Haresh Menghani notes: From a technical perspective, the pair’s inability to capitalize on the post-FOMC bounce to mid-1.3200s clearly points to persistent selling bias at higher levels and support prospects for a further near-term depreciating move. A fresh leg of the weakness has the potential to accelerate the fall further towards challenging the 1.3100 handle. On the flip side, the 1.3260-65 region now seems to act as an immediate resistance and is followed by the 1.3300 round figure mark.”
The GBP reaction to the data is likely to be limited, as the BOE monetary policy decision and the Brexit-related headlines will continue to drive the flows in the British currency.
Stock Market News
Forget the stocks caught in the trade war crossfire
- “I like companies that I think will do well” whether the U.S. and China agree on a trade deal or not, CNBC’s Jim Cramer says
- “Maybe take a look at Nike. Big, big in China. Stock’s going down. I think it reports a good quarter,” the “Mad Money” host says
- He says the trade dispute is more than just about the trade deficit: “It’s about the trust gap”
CNBC’s Jim Cramer on Wednesday told a caller he likes to look for stocks that will perform well despite the ongoing trade discussions between the United States and China.
“I like companies that I think will do well either way,” the “Mad Money” host said. “Maybe take a look at Nike. Big, big in China. Stock’s going down. I think it reports a good quarter. ”
Trade negotiations between the United States and China have boiled down to whether President Donald Trump can trust the Chinese or not, Cramer said.
And history is playing a huge role in the discussion.
“It’s not about the trade gap, people. It’s about the trust gap,” the host said. “Until investors realize that’s what’s driving these negotiations, we’ll forever be playing this game of ‘deal or no deal,’ and the market will get hammered every time people realize that we’re a long way from reaching a big kind of deal with any kind of accommodation with China.”
The U.S. goods deficit with China rose nearly 13 percent to $79.5 billion in December.
Banks stifle Wall Street rally following dovish Fed statement
The S&P 500 and the Dow ended lower on Wednesday as interest rate-sensitive financial stocks dragged down the indexes after the U.S. Federal Reserve affirmed a dovish monetary policy stance.
While all three major U.S. stock indexes briefly reversed earlier losses following the Fed statement, only the Nasdaq ended the session in positive territory.
“The first reaction to a Fed statement is always the wrong reaction,” said Art Hogan, chief market strategist at National Securities in New York. “Hey great, the ambulance got here, oh wait – we need an ambulance. The Fed to the rescue – oh wait we need the Fed to rescue us?”
At the conclusion of its two-day monetary policy meeting, the central bank indicated it sees no further rate hikes this year, and released details of a plan to end the monthly reduction of its balance sheet.
But while the indexes briefly turned positive after the statement’s release, banks, which are sensitive to interest rates, put a damper on the rally.
The financial sector sold off sharply in the last hour of trading, ending the session down 2.1 percent.
R.J. Grant head of trading at Keefe, Bruyette & Woods in New York saw “a heavy pickup in selling in the banks especially,” as the yield curve flattened.
The stock market has rallied since the beginning of the year, when Fed chair John Powell said the Fed would take a “patient” approach to monetary policy.
Powell affirmed that sentiment at a press conference following the release, citing mixed economic data and risks associated with Brexit and trade negotiations as reasons for caution.
Indeed, Federal funds futures now see nearly even chances that the central bank will cut interest rates in early 2020.
The Dow Jones Industrial Average fell 141.71 points, or 0.55 percent, to 25,745.67, the S&P 500 lost 8.34 points, or 0.29 percent, to 2,824.23 and the Nasdaq Composite added 5.02 points, or 0.07 percent, to 7,728.97.
Of the 11 major sectors in the S&P 500, six ended the session in negative territory.
Shares of Fedex Corp dropped 3.5 percent after the global package delivery company cut its 2019 profit forecast, citing slowing global trade growth.
FedEx weighed on the Dow Jones Transport Index, a closely-watched gauge of economic health, pulling the index down 1.3 percent.
Bitcoin overview: $6,000 becomes a possibility once $4,000 is cleared – Tone Vays
- BTC/USD is locked in a range after another attempt to move above $4,000
- Tone Vays expects a move towards $6,000 before another leg down.
Bitcoin (BTC) is back at $3,975 after another failed attempt to crack $4,000 barrier. The first digital coin has been sitting in a tight range ever since it broke $3,900 handle as the upside momentum fades away on approach to the critical resistance.
Despite short-term troubles, cryptocurrency experts believe in a sustainable long-term growth for BTC and expect a mass adoption of its underlying technology.
Thus, crypto expert and researcher Tone Vays believes that BTC/USD can go as high as $6,000. Moreover, if the price breaks above $4,200 he expects a sustainable ‘a thousand-point breakout to the upside’, he said in the interview with IG.
“I do think we can break out on the price and go as high as $5000, possibly even as high as $6000, but I still think we will see lower lows sub $3000 prices sometime this year,’ he added.
Vays intends to sell some Bitcoin once the price settles somewhere between $5000 and $6000 levels to position for the next leg down.
Meanwhile, Tim Draper recently said that Bitcoin will hit $250,000 by 2022 or 2023 to represent up to 5% of the global economy.
BTC/USD, technical picture
On the intraday level, BTC/USD is supported $3,919-$3,900 area that includes SMA50 (4-hour) and SMA200 (1-hour). A sustainable move lower will push the price back to the previous range and potentially trigger more sell-off with the next focus on $3,800.
On the upside, $4,000 is the hurdle No.1, followed by $4,187, which is the highest level of 2019 and psychological $4,200.
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