The U.S. Dollar is relatively unchanged after yesterday’s Fed decision after initially swinging downward based on some interpreting the announcement as dovish.
In reality, the message came in mixed from the new Fed chairman Jerome Powell as this was his first conference and he had to answer to doubts over the economic outlook with news of tariffs dominating headlines.
While the G-20 Summit goes on in Argentina, officials including Treasury Secretary Steve Mnuchin have also been pressured on why the U.S. is seeking to start a “trade war,” which Mnuchin clarified is not the intent or goal to reporters. Subsequently, the U.S. Dollar has been kept from gaining based on the Fed’s first interest rate hike of the year.
Indeed, the Fed increased the Federal Funds Rate to 1.75% and signaled to complete its plan of three total hikes for 2018. Some market watchers expected a more hawkish change to the dot plot with an addition of another hike for the year. Nevertheless, Powell did not deliver on that, but could not sound more confident about improvements across all sectors of the economy, including inflationary growth. We believe the greenback is suffering from focus on trade news, but with data on our side unlike in Europe, the buck could see some gains as we close the week.
The Euro had seen some advancement against the dollar yesterday as markets digested the Fed decision, but started dwindling a bit this morning after Markit Purchasing Managers Index figures revealed a slowdown. PMI Services and Composite for the Euro-zone came in lower than expected at 55.0 and 55.3 respectively when estimates were above 56.0. The shared currency could see a bit of a downturn if PMIs on our end, which come at 9:45AM, look better. Trade headlines could keep swings going and we consider it the more likely scenario for the next week and a half.
The Pound is trading in stronger ranges after Retail Sales numbers showed an expansion, thus complementing optimism from yesterday’s stellar wage indicators. Regardless, Brexit news keep Sterling from appreciating too much and at the time of writing, the currency was in decline based on pessimism over the U.K. finishing a trade deal before next year’s deadline in March. Issues such as the Ireland-Northern Ireland border and financial services staying in London remain unresolved.