The market’s attention was on the Federal Reserve today and the release of the Federal Open Market Committee (FOMC) statement after a policy meeting that began on Tuesday.
In anticipation of the policy announcement, there was little risk off in the currency markets as there are expectations of a somewhat more dovish tone from the Fed today as it takes into account the turbulence in global markets since the start of the year. Such economic conditions would not give the Fed enough reason to raise interest rates soon.
The Fed hiked rates in December for the first time in almost a decade and after that there were expectations of four rate hikes to follow this year. But now some are only expecting one more rate hike this year.
The dollar was weak today and the euro was strong across the board. There was limited movement in the dollar/ yen pair which traded around 118.30.
The euro tested $1.09 against the dollar but it was strongest against the Swiss Franc today and spiked to a new one-year high. EUR/CHF hit 1.1074, which is the highest level since the Swiss National Bank removed the 1.20 CHF floor a year ago.
One of the best performing major currencies was the Australian dollar which touched a fresh three-week high versus the greenback at $0.7067. The aussie was buoyed by stronger than expected Australian Q4 inflation data. CPI rose by 1.7% year-on-year in the final quarter of last year, beating expectations of a 1.6% annual rise and compares with a rate of 1.5% in the previous quarter.
Oil prices retreated today and the March light sweet contract was back below $31 after Tuesday’s gain past the $32 mark.
Data out of the US consisted of new home sales which surged 10.8% in December to a seasonally-adjusted annualized rate of 544,000 homes. This beat expectations of a 500,000 rise. The data had little impact on the dollar as this was just secondary in importance compared to the Fed event later. For the rest of the US session focus will be on the FOMC. While no policy changes are expected and no press conference is scheduled, investors will look to the FOMC statement for any clues on further rate hikes.
Meanwhile, shortly after the FOMC statement, attention will turn to another central bank meeting – the Reserve Bank of New Zealand policy announcement.
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