Choppy price action in the forex markets this week as traders awaited the highly anticipated monetary policy statement from the Federal Reserve on Wednesday.
After raising growth / inflation forecasts and getting confirmation that the Fed will not likely tighten monetary policy, traders returned focus to bond yields and covid-related headlines, ultimately pushing traders into defensive mode into the weekend.
Notable News & Economic Updates:
Growing Number Of Nations Suspend AstraZeneca Covid Vaccine Amid Blood Clot Concerns
Australian Central bank emphasizes lower-for-longer rate view
Economic recovery has been stronger than expected: Lowe
German Economic Expectations Rise Again in March, ZEW Survey Says
Bank of England Breaks From ECB’s Effort to Curb Market Rates
FOMC Statement: Fed sees stronger economy and higher inflation, but no rate hikes
Oil drops more than 7% in worst day since September
U.S. Jobless claims unexpectedly jump despite relaxed economic restrictions
Heated exchange between the U.S. and China in Alaska
Germany and France to resume rollout of AstraZeneca vaccine
Fauci says the variant from the U.K. likely accounts for up to 30% of Covid infections in U.S.
Quiet Markets This Week
On the hourly chart above, we can see that that equities, gold and the U.S. dollar remained mostly in a range in the sessions leading up to Wednesday’s release of the Federal Reserve statement.
The markets were lacking a major catalyst to make moves on before the Fed, but the suspension of the AstraZeneca vaccine in Europe did have some traders getting defense on Monday and Tuesday. This is likely why we did see a rise in the Greenback / dip in Treasury yields, and with bond yields dipping, likely why we saw a move higher in equities given the focus on bond yields over the past few weeks.
On Wednesday, Fed Chair Jerome Powell gave the latest statement from the Federal Reserve, updating their outlook on GDP and inflation, but leaving interest rates and asset purchases where they were. We also the number of Fed members grow to four that expected rate hikes in 2022 (only one saw a hike during the December 2020 meeting), and seven saw a hike in 2023 (only five saw a hike at the previous meeting).
And as we can see in the hourly chart above, the U.S. dollar fell on the news as traders priced in expectations of monetary policy remaining loose through 2021, and equity and gold traders took their markets higher on Dollar weakness.
Thursday through Friday, we saw bond yields and the U.S. dollar rally, likely a reaction to the Fed not taking action on the rising bond yield situation, leading to a reversal in the moves higher in both equities and gold. It’s also arguable that traders did get more defensive on rising COVID fears as cases picked in Europe, which was likely a contributor to oil’s weakness:
Overall, the Fed did provide some action to the markets this week, but relatively speaking, it was a bit of a snoozer and repeat in price action of recent weeks (i.e., rising bond yields and risk-off/equity weakness).
Sideways Action in FX
Like the other asset classes, the major currencies mostly traded in a tight ranges this week, with very few moments where we saw a 1% move one way or another.
We did have a semi-busy calendar/news flow as seen in the “Notable News & Economic Updates” section above, so we did see moments of uniform action among the majors (especially the Wednesday spike in reaction to the FOMC statement). But overall, most currencies didn’t trade too far from where they started on Monday.
- U.S. Homebuilder confidence drops as interest rates and lumber prices rise
- U.S. import prices rise strongly in February, boosted by crude oil, commodities
- U.S. retail sales declined in February as weather impeded demand
- Powell says the Fed is committed to using all its tools to promote recovery
- BOJ widened target yield band, pledges to buy risky assets when necessary
- Australia unemployment drops to 5.8% as recovery strengthens
- New Zealand economy contracts in Q4, cooling rate hike talk
- Canada’s annual inflation rate rose to 1.1%, from 1.0% in January
- Canadian retail sales bounce back after second-wave lockdown
- The Swiss Producer and Import Price Index remained unchanged in February 2021
- Growing Number Of Nations Suspend AstraZeneca Covid Vaccine Amid Blood Clot Concerns
- Paris back in lockdown to curb spread of COVID-19 virus mutations
- Germany reports biggest rise of COVID-19 cases in two months
- February 2021: Annual inflation stable at 0.9% in the euro area; Up to 1.3% in the EU
- Bank of England governor Andrew Bailey: I’m confident about UK’s post-Covid future
- U.K. GfK consumer confidence index up from -23 to -16 in March
