The highlight last week was the Federal Reserve’s policy-meeting, statement and press conference on Wednesday. As expected the Fed left its policy rate unchanged at 0.0-0.25% but importantly the updated “dot-chart” of FOMC members’ policy rate expectations points to only an incrementally less dovish stance compared to three months ago. This is seemingly premised on the Fed’s forecast that core PCE-inflation will rise only modestly from 1.5% yoy in January to 2.2% yoy by end-year despite US GDP growth hitting a 37-year high of 6.5% this year.
Bond, equity and crude oil markets were seemingly not convinced about the Fed’s macro/policy matrix. The Treasury yield curves steepened further in the wake of the meeting, US equity markets (particularly the more risk-sensitive Nasdaq) corrected lower and the price of crude oil collapsed 6.9% on Thursday.
FX markets have been more sanguine. Global FX volatility has picked up but is still in line with its 10-year average and most currencies, particularly in Asia, having moved little in the past four days. The notable exceptions have been high-yielding emerging market currencies, which have been buffeted domestic central bank events, particularly in Turkey.
The net result is that the US Dollar, Euro, Sterling and Australian Dollars ended the week only marginally weaker in trade-weighted terms while the Kiwi Dollar was unchanged. The main outlier within developed currencies was the safe-haven Swiss Franc which gained 1.2% last week. It has appreciated further in the past 48 hours but remains within its three-week range.
