Fed less hawkish than previously. USD weaker

I mooted the idea yesterday that recent data would produce a less hawkish statement from the Fed and that is precisely what occurred. Although the Federal Reserve Chairman, Jerome Powell did announce a rise of 75 basis points to a base rate of 2.5%, he commented that rates were back to neutral, so no further forward guidance would be forthcoming. He didn’t rule out another big rate rise at their next meeting but the tone of the statement had softened. So, traders sold the US dollar. The GBPUSD rate shot up to $1.2165 and is just above there this morning. The EURUSD rate also rose swiftly to $1.02 and stabilised at that level. The dollar’s next challenge is this afternoon’s US economic growth data. The forecasts suggest we ought to see 0.4% GDP growth in the year to June but many believe the data will undershoot that. Q1 showed a 1.6% contraction year on year. If that data shows minimal or negative numbers, we can expect further USD weakness.

Australian retail sales disappoint

I haven’t written a lot about the Australian dollar of late, largely because it has been range trading against the pound. We did see the Aussie dollar lose some ground overnight though when Australian retail sales data showed just 0.2% growth in June against a market expectation of 0.5% and the growth figure in May of 0.9%. The Reserve Bank of Australia will need to tread cautiously with their interest rate setting to avoid a collapse of consumer confidence.

JPY strength is likely if industrial production, employment, and retail sales meet forecasts

The Japanese yen had a very volatile night following the US Federal Reserve’s announcements. The USDJPY rate dropped 2.5 Yen before it found any USD buyers. GBPJPY fell as well but by a smaller margin of 1.5 Yen to this morning’s JPY 164.95. We believe this evening’s Japanese industrial production and retail sales data should give the Yen another boost; such are the forecasts. IF GBPJPY dips, it will find support around the upward trend line at JPY164.

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