Dollar Extends Post-Fed Rally
JUNE 17, 2021
The Federal Reserve interest rate decision was the largest risk event on this week’s, possibly this month’s, calendar and it did not disappoint.
The central bank caused equities to dive and the dollar to soar after policymakers indicated faster-than-expected tightening of monetary policy. The dollar instantly rallied as the headline of the so-called “dot-plot” hit the tape. The dot plot showed that the Fed expects two rate hikes by the end of 2023 and some members saw a hike in 2022. The central bank also moved up their forecasts for inflation, a measurement that could push the Fed to act even faster if price increases prove to not be as transitory as once thought.
A gauge for overall dollar strength is now at the highest level since April 14th.
This morning’s economic data will take a backseat to the fallout over the Fed meeting. Weekly jobless claims were higher than expected last month, breaking an impressive streak of improvement. A separate report showed that the June Philadelphia Fed Index slightly missed expectations, coming in at 30.7 versus an estimate of 31.0. As expected, traders have shrugged off the data as a non-event.
What to Watch Today…
- No major economic events scheduled for today
Like all the dollar’s rivals, the Euro fell quickly yesterday afternoon following the hawkish surprise from the Federal Reserve. The Euro’s negative momentum picked up steam overnight as dovish comments from European Central Bank chief economist Philip Lane downplayed the importance of the “tapering debate.” The comment alone may have put modest downward pressure on the common currency, but against the backdrop of an increasingly hawkish Federal Reserve, it was enough to send the Euro another half a percent weaker.
EUR/USD is now at the lowest level since April 13th and we will watch to see where the pair will carve out a bottom range.
The Canadian dollar continues to unwind its rally from the beginning of the year. The loonie has now fallen to a six-week low against the U.S. dollar on broad greenback strength. The price of oil dipped slightly adding insult to injury for the Canadian dollar. There is no major economic data due out of Canada today.
USD/CAD is at the highest level since May 4th.