The Fed hiked interest rates by 0.25% as expected but the dollar sold off as traders booked profits and bulls seemed unimpressed by the lack in conviction. Still, Yellen said that it makes sense to keep hiking at a gradual pace as the economy continues to show improvements, but added that they have yet to adjust to incoming data and fiscal policy reform. The dot plot forecast still indicated three rate hikes for the year but one voting member dissented in favor of keeping rates unchanged this time. Building permits and housing starts, along with the Philly Fed index and initial jobless claims, are due today.
The euro had a mixed performance as it took advantage of dollar weakness but gave up ground to the yen and commodity currencies. Italian retail sales and the region’s unemployment rate came in stronger than expected but political headlines seemed to be the main driver of price action. Final CPI readings are due today and no changes to the headline and core readings are eyed.
The pound barely got a boost from stronger than expected UK jobs data, even as the economy added 11.3K jobs in February versus the projected 3.2K reduction. The unemployment rate improved from 4.8% to 4.7% but the average earnings index slumped from 2.6% to 2.2%, lower than the 2.4% consensus, to hint that consumer spending would likely take a hit in the coming months. The BOE decision is scheduled today but not actual policy changes are eyed.
The franc also had a mixed performance as it reacted to country-specific events while traders are holding out for the SNB decision today. No actual policy changes are expected but the usual jawboning spiel could be in play as SNB foreign currency reserves increased recently.
The yen took advantage of dollar weakness and risk aversion to advance against its rivals. There were no major changes to policy in today’s BOJ monetary policy announcement so yen bulls were able to rest easy. The press conference is still coming up next.
Commodity Currencies (AUD, NZD, CAD)
The comdolls were able to get back on their feet, thanks to the dollar selloff and a reduction in EIA crude oil stockpiles. New Zealand reported 0.4% GDP growth in Q4 versus the projected 0.7% expansion and the earlier 1.1% growth figure. Australia’s jobs data was weaker than expected as the economy lost 6.4K jobs versus the estimated 16.3K gain and the unemployment rate rose from 5.7% to 5.9%.