Über-dovish Fed knocks dollar back


Investors had been teed up for the Federal Reserve to keep the funds rate unchanged and for the chairman to make another reference to patience being needed for the moment. They were disappointed on neither count by the Fed's rate statement and Jerome Powell's press conference. The Fed is "patiently awaiting greater clarity" before it makes another rate move. But they were rather taken aback by the way the chairman laid on the patience by the shovelful. 

The New York Times' interpretation was "Federal Reserve Signals End of Rate Hikes" and investors were not inclined to disagree. The USD lost a swift three quarters of a cent to the EUR and it is 0.5% lower o the day, the weakest performer among the major currencies.


The flow of Euroland economic data continued on Wednesday and throughout this morning. Few exceeded forecast and some were wide of the mark. German inflation slowed by more than expected to a provisional 1.4% and retail sales fell by a chunky 4.3% in December. French inflation was a tick above forecast at 1.4% while in Spain it was down to 1.0%. Spain and Italy reported quarterly growth of 0.7% and 0.2% in the fourth quarter of 2018. For the euro zone as a whole the estimated expansion was 0.2%, unchanged from Q3, and unemployment was steady at 7.9%.

Although the numbers told investors nothing they did not already suspect, neither did they offer a reason to get on board the EUR. Any gains the euro achieved were by default, against currencies that were having an even worse day.


Another day of silence from Statistics Canada left investors at a loss about what to do with the Loonie. Three quarters of a cent took the price of WTI crude 1.5% higher so, with nothing else to guide them, investors allowed the CAD to trickle higher.

The Loonie's biggest daily gain was a result of the dovish message from the Federal Reserve. It added a quick three quarters of a cent and held onto the gain through to Europe this morning. On the day the CAD is 0.8% higher against the USD.


Investors have still not forgiven Britain's House of Commons for what they see as bottling out of the Brexit votes on Thursday. The perception is that members of parliament ducked their responsibility to the country in favor of making a spurious show of party unity. Parliament has sent the prime minister to sell to Europe an undefined withdrawal deal that the EU had already turned down. It turned it down again yesterday during an "open and frank" phone conversation between Theresa May and EU president Donald Tusk. It is unclear what will happen next but it will probably not happen quickly.

In a pair of relatively unimportant UK ecostats released overnight and this morning, 'Growth from Knowledge' left consumer confidence unchanged at -14 and Nationwide, a mortgage lender, said house prices were just 0.1% higher in January than in the same month last year. The GBP was 0.1% ahead on the day, courtesy of the dovish Fed.


After retreating during the early New York session the JPY abruptly turned tail and moved higher for no apparent reason. The Federal Reserve's announcement and press conference jerked it higher still and it continued to gain ground through Europe. The JPY is a net 0.7% higher against the USD.

Japanese data overnight showed industrial production falling again in December, albeit only by a provisional 0.1%. Production was down by 1.9% on the year.

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