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Dollar Tumbles Post FOMC Decision, ECB in Focus

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USD

The dollar index fell from a one-week high post the FOMC decision. The Federal Reserve raised the Fed Funds target range from 1.50%-1.75% to 1.75%-2.00%. It is the second time this year where the Fed raises interest rates and the market still anticipates two more rate hikes to come throughout the rest of the year. The FOMC statement confirmed that the risks to the economic outlook are roughly balanced, the labor market is strong, investments continue to grow strongly, and further gradual rate hikes will be consistent with the 2% inflation target. Also, the Federal Reserve raised the GDP projection from 2.7% to 2.8%, Core PCE inflation from 1.9% to 2.0%, and lowered the unemployment rate projection from 3.8% to 3.6%. On the other hand, the Fed chairman, Jerome Powell, noted that the Fed will hold a press conference after every meeting starting January 2019. The Retail sales figures for May will be released today.

 EUR

The Euro rose against the United States dollar to recover all the losses incurred on Tuesday. The single currency began the day on the back foot due to the soft industrial production data. However, the main focus is on the European Central Bank meeting today as investors expect a hawkish outcome from the meeting. Some ECB officials announced last week that the ECB might disclose publicly its tapering schedule. The currency depreciated almost three percent since the last ECB meeting on 26th of April. Will this depreciation allow the president Mario Draghi to be more hawkish in his press conference?

GBP

The British pound tumbled to a six-day low against the US dollar post inflation numbers. However, the pound recovered its losses as the dollar dropped after the FOMC decision. The Consumer Price Index held steady at 2.4%, the lowest level since March 2017. Until now, the wage growth and the CPI numbers of the past month aren’t encouraging for the Bank of England to consider a rate hike soon. The Retail sales figures for May are due today.

AUD

The Australian dollar came under pressure after a weak jobs report. The employment change was up only 12k versus an expectation of 18k, and the past reading was revised lower from 22.6K to 18.4K. On the other hand, the unemployment rate descended to 5.4% from 5.6% prior, the lowest level since December 2017. However, the drop in the unemployment rate could have occurred due to the drop in the participation rate. The participation rate, which measures the number of people that are actively searching for a job, fell to 65.5% from 65.6% prior.

Gold

Gold price is hovering near the $1,300 psychological level as the dollar weakened after the Fed rate announcement and press conference. Gold traders were hoping that the nuclear summit and the Fed meeting could lead gold prices to a breakout from the tight trading range. If the dollar weakens further, the 200-day simple moving average might be the next resistance level for the precious metal.

Oil

Oil prices rose almost 1% on Wednesday as the Energy Information Administration reported a drop in US crude oil inventories. The Crude oil Inventories of last week fell by 4.143 million barrels to a total of 432.4 million barrels. A major event for the oil market is taking place next week, which is the OPEC meeting on the 22nd of June. Oil prices remain vulnerable to the rise in global oil production. OPEC reported on Tuesday that the production rose in May. Russian news agency also reported that the Russian output rose to 11.1 million barrels up from 11 million barrels. Moreover, the US oil production surged by 30% in the past two years.

Major Economic Events

GMT Country Event Expectation Previous
8:30 UK Retail Sales (MoM) (May) 0.5% 1.6%
8:30 UK Core Retail Sales (MoM) (May) 0.3% 1.3%
11:45 EU ECB Interest Rate Decision (Jun) 0.0% 0.0%
12:30 EU ECB Press Conference     
12:30 US Core Retail Sales (MoM) (May) 0.5% 0.3%
12:30 US Retail Sales (MoM) (May) 0.4% 0.2%
14:00 US Business Inventories (MoM) (Apr) 0.3% 0.0%

 
Disclaimer

The prices and news mentioned in this outlook are absolutely no guarantee of future market performance and do not represent the view of ICM Capital Limited. Financial markets can move in either direction causing profits to be made or complete losses to be incurred by the trader. Each trader must decide for themselves what their risk appetite is and ensure that correct risk management procedures are in place before placing any trades.

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