Dollar Rebuilds Gains as FOMC Statement Leaves December in Play

Updated on
  • Traders turn focus to BOE, announcement of Fed chair nominee
  • USD rallies versus majority of G-10 peers; EUR, GBP, JPY fall

The dollar rebuilt gains after the Federal Open Market Committee said it sees the economy expanding at a “solid” pace despite hurricane-related disruptions; officials left the policy rate unchanged in a widely telegraphed decision.

Traders took the upgraded assessment of the economy as a signal the central bank remains on track for a December hike. The Bloomberg Dollar Spot Index briefly dropped after the FOMC policy statement was released before quickly recovering; the index was on pace to end the day up 0.1 percent. The greenback reached its high early in the U.S. session after an ADP employment report estimated that businesses added 235,000 jobs in October versus forecasts for a gain of 200,000; the currency then retreated on a below-estimate ISM manufacturing index reading.

  • The statement had few other changes versus September. Odds of a rate hike by year-end remained steady around 85%
  • Beyond Wednesday’s FOMC decision, investors are closely focused on the naming of the next Fed chair, which President Trump said will come Thursday afternoon. Market odds favor Fed Governor Jerome Powell to replace chair Janet Yellen, though the incumbent is still thought to be in the running to renew her term
  • EUR/USD was trading down ~0.25 percent, around 1.1617 after the FOMC. The pair should find support around 1.1600, where option-related and profit-taking bids are positioned; technical support might be seen at the Oct. 27 low of 1.1575. Offers are in place above 1.1680 and surround the 100-DMA at 1.1691, traders in Europe said
  • USD/JPY rose after the FOMC decision to trade around 114.15 versus a session high of 114.28 seen earlier. The pair faces technical resistance at a July peak of 114.49; bids are in place under 113.60, according to traders in London
    • Japan PM Shinzo Abe said he will instruct his Cabinet to prepare an extra budget by the end of the year; also said he has a blank slate for BOJ succession though current Governor Haruhiko Kuroda has done a good job
  • GBP/USD GBP fell to a fresh low for the day at 1.3241 after U.K. Defense Secretary Fallon resigned, citing allegations about his past conduct. 
    • GBP traders now turning focus to Thursday’s Bank of England meeting. While a 25bp rate hike is almost universally expected, traders remain uncertain whether Governor Mark Carney will signal further hikes to come or whether he will stay his hand at “one and done,” due to uncertainties surrounding Brexit. Brexit negotiations with the EU are expected to resume next week
    • Uncertainty surrounding BOE outlook beyond Thursday may have seen some accounts locking in profits on recently set GBP longs, a trader in London said
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