The Dollar has staged a recovery against major currencies in the wake of yesterday’s Fed policy meeting. The Dollar initially weakened after the release of the policy meeting statement but Fed Chairperson Powell’s press conference triggered a turnaround for the Dollar. Powell argued that soft US inflation data in Q1 were likely transitory and markets pared back their pricing of Fed rate cuts for the rest of the year to 17bp from 25bp prior to the Fed meeting.
The GBP/USD cross, which had rallied to within touching distance to 1.31, weakened to 1.305 before stabilising. But it has weakened further in the wake of today’s MPC policy meeting statement and quarterly inflation report. The Bank of England revised upwards its forecasts for employment, growth and inflation and indicated that it may be appropriate to hike rates 2-3 times in the next couple of years. But ultimately the MPC left rates on hold today and importantly none of the nine members voted for a 25bp hike and the bank’s bullish forecasts remain conditional on a smooth Brexit – an outcome which remains far from a certainty.
Similarly, USD/CHF has risen back towards 1.02, helped by another weak set of Swiss macro data. Retail sales contracted 0.7% yoy in March – the fourth consecutive monthly contraction.
