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Dollar Bulls See Red After FOMC

  • Fed provides no clarity to investors
  • Fed offers a darker view on US economy for 2015
  • No consensus on the number of rate hikes for this year
  • Investors unwinding dollar positions and market complacency

The U.S dollar bull has being seeing red ever since the conclusion of yesterday’s FOMC meeting. The lack of clarity from the Fed, which the market has been interpreting as a dovish signal, is putting the dollar under pressure across the board and allowing several of the G10 currencies to print multi-month outright highs.

The EUR trades above €1.14 heading stateside, edging ever higher ahead of today’s important Eurogroup meeting. The lull in Greek headline rhetoric is pressuring some of the weaker short EUR positions. Sterling has managed to print a seven-month high £1.5910 and is threatening to take on the psychological £1.60 handle after this week’s stronger than expected U.K wage growth and retail sales numbers for May. A pause in the rate divergence argument has lifted Yen below ¥122.56. Despite SNB’s Jordan, in his post rate decision press conference where rates were held steady, reiterating that the CHF is clearly overvalued is not weakening that currency. The market continues to value the CHF ($0.9165) as safe-haven due to the situation in Greece.

The USD was never going to find much support after the FOMC lowered growth forecasts over the rest of 2015 and also revised down their interest rate projections for 2016 and 2017 by -25bp. Perhaps more importantly, the committee offered no consensus on the number of rate increases for this year. A large percentage of the market had been expecting the Fed to clearly signpost the timing of rate liftoff stateside.

The Fed is Consistent

With Ms. Yellen and company again successfully muddying the timing has pressured those investors who had been expecting a stronger commitment by the Fed for a September rate increase to unwind or pare back on their dollar long positions. Technically, the dollars rally has stalled since mid-March mostly on uncertainty over the Fed’s intentions and this weeks meeting should confirm that investors can expect heightened market volatility across all asset classes even more so going forward. As well as unwinding dollar positions, investors have had to unwind their own market complacency factor.

Yesterday’s Fed statement should be eyed as short-term negative for the dollar, but a long-term plus. U.S rates will eventually end higher, but investors must now adjust to the fact that they are to get there more slowly than previously anticipated.

FOMC Statement:

Most of the changes were, as expected, in the first paragraph on economic conditions, and they represented an upgrade to the downbeat April statement:

FOMC: Summary of Economic Projections

Analysis of Dot Plot Projections:


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell [5]

Vice-President of Market Analysis at MarketPulse [6]
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

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