The main focus early this morning at 2 am local time was on the outcome of the FOMC meeting that market players around the world had been waiting for over the past few weeks.
Having anticipated an aggressive rate hike by the Federal Reserve (Fed) by Chairman Jerome Powell, the result was in line with forecasts with a 50 basis point rate hike from 0.50% to 1.00%.
While this was the largest rate hike in 22 years, the US dollar reacted contrary to expectations when it showed a depreciation to a 1 -week low following the initial reaction of investors.
What really happened?
The result of the 50 basis point hike has been expected by the market before and most investors have already placed a price-in position towards the meeting, so the US dollar has already shown a significant strengthening since last week.
Investors did not react so significantly to the expected result, instead paying attention to a follow -up statement by Jerome Powell who doubted for a 75 basis point interest rate hike by the central bank would happen.
This made investors start to react to Powell's statement which was a bit dovish even though the Fed is still on the path of tightening its policy.
Thus, market analysts assess that investors acted to take first profits on the previous strengthening of the US dollar which soared to a 20 -year high.
Even so, analysts remain optimistic that the US dollar is expected to continue to be driven strongly after this following the results of the meeting that met the forecast despite the initial reaction that showed otherwise.
It is also possible that the US dollar could move weaker towards the end of this week as the focus will shift temporarily to the US NFP employment data report for April.
Investors should be wary of expectations for a more severe depreciation of the US dollar following a forecast of lower employment growth readings supported by the ADP NFP jobs report measuring the private sector in the US published weak in the New York session yesterday.
For now, other major currencies in the market will take advantage of the US dollar’s depreciating factor after the horizontal movement displayed against the US dollar earlier this week.
