Dollar Fluctuates as Investors Recalibrate Positions After Fed

Updated on
  • BOJ’s steady hand gets a dovish nudge from new board member
  • Fed officials to speak Friday for first time since decision

The dollar was little changed as investors adjusted positions a day after the Federal Reserve affirmed it expects to raise rates again this year.

The Bloomberg Dollar Spot index swung between small gains and losses. Odds for a rate hike by December reached almost 70 percent after the Fed Wednesday said it still expects another increase in 2017. Several U.S. policy makers are set to speak Friday for the first time since the meeting and could elaborate on their outlooks.

  • U.S. economic data Thursday appeared to support the Fed’s contention that any impact from recent hurricanes will be short-lived. Weekly jobless claims fell to 259k from a revised 282k in the prior week, below economist estimates for a reading above 300k. The September Philadelphia Fed business outlook index rose to 23.8 vs estimates for a decline to 17.1, and the index of leading economic indicators rose 0.4%, a tenth above forecasts
  • Among other factors in FX calculations, the BOJ left rates and policies on hold, reiterating its intention to anchor rates close to zero. A new policy board member dissented in favor of further easing, thus likely ensuring a prolonged period of low and stable rates. RBA Governor Lowe said that rising rates overseas are unlikely to be matched in Australia in the near-term, making the Aussie dollar the worst performer vs the greenback, with a skid of more than 1.2 percent. AUD was also weighed by a drop in iron ore futures and by an S&P rating downgrade of China
  • The Bloomberg dollar index relinquished overnight gains of as much as 0.25% to fall as much as 0.14% before clawing its way back to little changed in mid-afternoon trading. The greenback was mixed against its G-10 peers, with NZD joining AUD among the biggest losers. NOK and GBP outperformed. Fed’s Williams, George and Kaplan are scheduled to speak Friday
  • USD/JPY traded around 112.50 vs a daily low of 112.14. Price action suggested a few light stops may have been tripped on the breach of the overnight low at 112.20, which corresponded with technical support from the 200-DMA. Traders say they prefer tactical longs in USD/JPY, given policy divergence between the BOJ and other G-10 peers, though trailing stop-loss sell orders are positioned below 112.00 in the event of a further USD washout
  • EUR/USD was trading around 1.1934, modestly paring gains from a session high of 1.1954 that more than halved its post-FOMC drop. EUR may find option-related offers ahead of 1.2000, where significant option strikes roll off Friday. Markets got no fresh insight on current monetary policy from a speech by ECB President Draghi, who is scheduled to speak again on Friday
    • EUR/GBP selling also weighed on EUR/USD as GBP gained elsewhere. Investors are awaiting a key speech from U.K. PM May Friday that may lay out further details of her Brexit policy
    • GBP/USD was trading near its daily high of 1.3587 after a fresh round of demand at the London fixing. GBP may face tech resistance at 1.3616/19 from its Friday/Monday highs ahead of Wednesday’s 1.3657 peak
  • USD/CAD was trading around 1.2335 ahead of Canadian inflation data due Friday, which could feed into Bank of Canada rate expectations. Odds of a third hike this year at the bank’s Oct. 25 meeting are above 40%, according to OIS market pricing
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