USD Strengthens Following Hawkish Powell

During the Asia session, the market's focus remained on the FOMC's September rate decision.
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Thursday, September 27 – Asia Session Recap

During the Asia-Pacific session, the market’s focus remained on the FOMC’s September rate decision.

As expected, the FOMC announced a 25 basis point hike, increasing the Fed Funds Rate to 2.00-2.25%. from 1.75-2.00%.

The updated dot plot from the Fed showed rate hike projections were unchanged from their June projections. Although, the new 2021 dots match 2020 dots at 3.25-3.50%.

This would suggest that the Fed does not intend to hike rates beyond the neutral rate (2.50-3.50%). Furthermore, it would signal an end to the Fed’s hiking cycle in 2020.

Regarding the Fed’s updated economic projections, GDP was increased to 3.1% (2.8% in June) for 2018 and to 2.5% (2.4% in June) for 2019. The Unemployment Rate for 2018 is seen slightly higher at 3.7% (3.6% in June) and PCE for 2019 at 2.1% (2.0% in June).

Following the Fed’s rate hike announcement and updated projections, USD initially weakened with DXY breaking below 94.00. This was primarily due to the Fed setting an end date for its rate hike cycle.

USD weakness, however, was short-lived with an overall upbeat tone from Fed Chair Powell in his accompanying press conference. Powell stated that this is a particularly bright moment for the US economy and that the growth outlook remains favourable.

Furthermore, Powell stated the removal of ‘accommodative’ is a sign monetary policy is proceeding as expected and does not signal a rate path change.

Following Powell’s comments, USD strengthened across the board and remains the strongest currency on the day. EURUSD is currently testing 1.1700 to the downside as GBPUSD approaches 1.3100.

Elsewhere, early in the Asia-Pacific session, we saw the latest policy decision from the RBNZ. As expected, policy remained unchanged with the Official Cash Rate at 1.75%.

In the accompanying statement, the RBNZ reiterated they expect to keep the OCR unchanged into 2020, and the next move could be up or down.

Furthermore, they see early signs of an increase in core inflation. Adding that the outlook for the OCR assumes growth will pick up over the coming year.

For additional research, we’ve posted news articles from around the web below.

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