The US dollar caught a solid bid in the back half of the press conference with Fed Chairman Jerome Powell and I’m not quite sure why. The moves aren’t huge but in the 20-30 pip range including a 70 pip bounce in USD/JPY from an initial dip.
The overwhelming message from the FOMC was that they don’t know what they will do next, are watching data and are prepared to move quickly when they get a clearer picture. But also that they think the economy is currently strong, despite negative GDP.
To me, the tone was hawkish and that should lead to US dollar bids. The chance of a Fed rate hike in June is down to 22% and July is at 85%.
That said, the bond market isn’t exactly validating the dollar move. US 2-year yields are flat on the day and 10s are down 4.5 bps and near the lows of the day. Stocks are flat.
I’m sympathetic to the idea that the Fed will inevitably fall behind the curve because they’re navigating a very unusual and fluid set of circumstances. But I was also impressed with Powell’s defense of the US economy and confidence that the underlying fundamentals are good.
I think the market will quickly shifts its focus back to the trade war and that’s likely what is causing the cross currents today.
This article was written by Adam Button at www.forexlive.com.