The dollar extended losses after the Fed reiterated its gradual approach to raising interest rates, despite acknowledging risks to the economy had abated. Asian shares were mostly lower while base and precious metals rose.
- The Fed left interest rates unchanged, as expected, and described an improving economic picture while noting “near-term risks to the economic outlook have diminished.”
- The statement also said the labor market had strengthened, an upgrade from June, and described household spending as strong. Inflation remained “low”, although it was an improvement from June’s assessment which stated that inflation had declined.
- A strong NFP on August 5th could signal the start of a countdown to a rate hike in September or December, according to some analysts. The Fed took an upbeat view on economic risks, which lifted the dollar until the market realized the statement was “more friendly than hawkish”, Citibank said.
- The US dollar rallied before reversing course following the release of the Fed’s statement; the Bloomberg Spot Dollar Index ended 0.1% lower, erasing earlier gains of as much as 0.5%.
- The S&P500 Index ended 0.1% down, recovering from initial losses after the dollar turned negative. Apple and Facebook rallied on better than expected earnings results, while Twitter, MacDonald’s and Coca-Cola declined.
- Treasury yields ended lower on the lack of Fed’s resolve; the benchmark 10-year Treasury note yields fell 0.06% to 1.50%, the most in 3 weeks.
- Durable goods orders for June plunged 4.0%, more than the expected 1.4% decline. Mortgage loan applications fell 11.2% last week.
- Deutsche Bank signalled it may deepen cost cuts after 2Q profit was almost wiped out by a slump in trading and restructuring costs.
- 2Q preliminary GDP expanded 0.6% quarter-on-quarter and 2.2% year-on-year, beating estimates of 0.5% and 2.1% respectively.
- Abe’s 28 trillion yen stimulus isn’t as big as it first appeared to be given nearly half of it includes measures that may not be new spending, Bloomberg Intelligence reported.
- If a bigger fiscal push is in the works, it raises the question of where the funds are going to come from, as the postponement of the sales-tax hike will restrict room for a large supplementary budget.
- The timing of Abe’s announcement, just ahead of the BOJ’s policy decision tomorrow is significant, and seems like a political attempt to coordinate monetary and fiscal policy.
- 2Q unemployment rate rose to 2.1%, from 1.9% previously and slightly worse than the 2.0% anticipated.
- OCBC reported a 15% decline in quarterly profit as loans contracted and income from its insurance unit slumped. Smaller rival UOB separately reported a 5% profit gain over the same period as trading income offset declining interest margins.
- Spot gold jumped 1.6% to $1,342.52/Oz to its highest point in 2 weeks as US durable goods data elevated growth concerns and the dollar weakened.
- Silver for immediately delivery rose as much as 4.0% to $20.4123/Oz; it continues to maintain above the $20/Oz handle.
- A key downside risk for precious metals would be a more hawkish-than-expected Fed statement tomorrow morning.
- WTI oil futures expiring in September slumped 2.3% to a 3 month low of $41.92/bbl as government data showed that US crude stockpiles unexpectedly climbed last week, halting the longest streak of declines on record.
- Spot 1.3509
- USDSGD fell 0.7% to 1.3482 on the back of a broadly weaker US dollar.
- The strong rejection of the 1.3600 handle could indicate more downside for the currency pair, with the 1.3400 support level a possible target over the short term.
- Spot 0.7523
- Broad dollar selling, coupled with yesterday’s better-than-expected inflation data, propelled AUDUSD 0.8% higher to 0.7529 earlier today
- Spot 1.3129
- Weaker oil prices drove USDCAD 0.5% to 4-month highs, before the dollar sell-off which occurred after the Fed’s statement helped reverse gains.
- The Canadian dollar continues to weaken, extending losses by 0.5% to 1.3124 earlier today.
- Spot 6.6675
- The PBOC strengthened its reference rate for a third day, by 0.1% to 6.6597.
- Both onshore and offshore yuan advanced along with other Asian currencies against the dollar after the FOMC meeting appeared to signal no great rush for another hike.
- USDCNH dropped 0.2% to 6.6627, its lowest level in more than 3 weeks. The next support level of 6.6500 could be reached soon.
- An IMF report stated that the yuan is still in line with fundamentals despite a decline over the past year.
- Spot 1.3220
- GBPUSD advanced 1.1% back above the 1.3200 handle, following a post-FOMC dollar sell-off.
- A head-and-shoulders pattern is beginning to take shape; a strong close above 1.3500 signals a strong reversal and will be a sign most GBP bulls will be keeping a lookout for.