ZFX: Dovish?  Hawkish? Choppy dollar amid the FOMC outcome

On Thursday, the European stocks are expected to open lower, following the counterparts in Asian markets earlier and the Wall Street overnight. Traders are digesting the latest guidance, hinting the policy stance, from the Fed meeting.

Of course, investors have already fully expected the low rates policy, however, the Fed still showed more to the market regarding the fed rate forecast (Dot Plot) inside the FOMC. FOMC members believed that the Fed may not have rate hike through the whole year of 2023, which is in line with pledging the low rates over the next few years.

The committees may just let the fed rate close to zero unless the inflation can stand at or be over 2% target for a period of time, and the labor market can reach “maximum employment”.

Meanwhile, the Fed assessment was a bit positive over the economic recovery in the US, pushing the rebound of the dollar and the Treasury yields. The dollar bounced against those major currencies, making dollar index back to 93 level. The benchmark 10-year US Treasury yield was up, touching 0.7% overnight.

Stocks in Asian markets were generally in a risk-off mode, mostly reacting to the overnight moves in the US trading session last night. Investors were not that optimistic after the news from FOMC.

ZFX analyst Jacob Leung said that the dollar clearly strengthened after FOMC meeting, implying three points. First, the investment market is more concerned about Powell’s comment on the economic outlook. Second, investors may have already fully anticipated all the information from Fed, causing a “buy the rumor sell the news” effect. Third, after eliminating the potential bearish of the dollar, risk aversion dominated again. The sell-off pressure in the stock markets may once again trigger the demand of the safe-haven.