Fed Patience Adds to The Dollar Woes

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Will the Federal Reserve raise interest rates at all in 2019? This was a question even Fed officials were unable to answer, as the minutes from the FOMC’s January policy meeting revealed.

Investors were left with more unanswered questions after the Federal Reserve minutes signaled that officials were unsure if rate hikes were needed this year. Although Fed members acknowledged the resilience of the labour market, growth was seen to be “stepping down” in 2019 with muted inflation pressures still a cause for concern. With rising external risks in the form of Brexit and decelerating growth in China &Europe, the Fed is likely to maintain a ‘cautious’ and ‘patient’ approach to monetary policy. The fact that officials are waiting to access “the possibilities of a sharper-than-expected slowdown in global economic growth” suggests that rates may remain at their current levels for an extended period of time.

The dovish minutes may fuel speculation over a possible rate cut in the distant future, given the unfavourable global macroeconomic conditions and health of the US economy. It is worth noting that there has been a barrage of disappointing economic data from the United States, while fading fiscal stimulus and political risk in Washington are simply rubbing salt into the wound. With the Fed being heavily data dependent, the Dollar is likely to remain highly sensitive to economic reports moving forward.

One key takeaway from the minutes was how almost all officials wanted to stop reducing the balance sheet this year. All in all, the Federal Reserve’s patience on rate hikes will make life harder for King Dollar in the medium to longer term. In regards to the technical picture, the Dollar Index has the potential to challenge 96.00 if bears are able to send prices back below 96.48.

Currency spotlight – GBPUSD

It is shaping up to be another wildly unpredictable and volatile trading week for the British Pound thanks to Brexit noise and chaos in the House of Commons.

With market pessimism over Theresa May’s trip to Brussels concluding without any breakthrough in Brexit talks, the appetite for the Pound is likely to be seen taking another dive in the near-term. However, we see the Pound appreciating in the medium-term as expectations mount that the government will extend Article 50 to prevent a no-deal Brexit. Taking a look at the technical picture, the GBPUSD is currently trading around 1.3044 as of writing. Although the currency pair has staged an impressive rebound on the daily charts, bears could still make a return below the psychological 1.3000 level.

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Lukman Otunuga

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets. Lukman provides in-depth analysis on the global currency and commodity markets and is often quoted by leading international media outlets such as: MarketWatch, CNBC, NASDAQ, Reuters, AFP, The Guardian and Yahoo. Prior to joining FXTM, Lukman spent two years as a research analyst with international currency broker FXCM, where he focused on a technical and fundamental analysis of the global currency, commodity, and stock markets. Lukman was also responsible for leading educational seminars for international and local high net worth individuals, and has published a series of educational articles on forex trading with City A.M. Lukman holds a BSc (hons) degree in Economics from the University of Essex, UK and an MSc in Finance from London School of Business and Finance, where he studied corporate finance, mergers & acquisitions and the role of international financial institutions