The Federal Reserve’s new inflation strategy involves allowing inflation and employment to go past they targets for the benefit of long-term price stability. The Federal Reserve is also conveying a message to us that zero interest rates are here to stay. Post announcement, the S&P 500 hit a fresh record high.
Although the dollar was expected to tumble with this tone, it was observed to rise sharply against the Euro and Yen, based on the premise that:
1. The Fed’s announcement had been widely expected and priced in.
2. As investors returns to US assets, dollar rallies.
3. Powell’s speech was interlaced with optimism – as he described the economy as healthy, apart from areas hit with virus.
Reaction from currencies:
· JPY was hit the hardest (Stay tuned to news conference by PM Abe today).
· Euro took a dip (Covid cases in France and Spain are also rising)
· CAD was the most resilient (stay tuned for monthly GDP reports today)
· AUD and NZD was observed to recover most of the post Powell losses thanks to the risk rally.
Any further insights as to how your currency pairings reacted to Powell’s speech?
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