FOMC Leaves USD Crippled

The FOMC meeting is behind us and the post mortem is a very weak USD. Despite the fact that the FED acknowledged that the risk to the downside has subsided, traders did not get any cues yet about a September rate hike. The focus will turn to non-farm payroll on August 5, Fed chair Janet Yellen’s speech at the annual Jackson Hole symposium and FOMC minutes to be released next month. The dollar index, which tracks the U.S. unit against a basket of six major rivals, stood at 96.591 (DXY), below an overnight high of 97.530. Earlier this week, it had risen as high as 97.569, its highest level since March.

Currencies: USD strengthened initially following the rate announcement, however the strength turned into weakness when traders realized that the statement did not increase chances for a 2016 rate hike. EURUSD rose to 1.1075 from 1.090 lows while GBPUSD jumped 150 pips from 1.310 to 1.3250 before consolidating at 1.3179. Meanwhile USDJPY which rose above 106.40 yesterday dropped to 104.79 at time of writing. Japan’s prime minister unveiled a surprisingly large $265 billion stimulus package on Wednesday, adding pressure on the central bank to match the measures with monetary stimulus steps.

Stocks: Stocks: Asian stocks were mostly lower on Thursday as Chinese equities deepened their losses, souring risk sentiment that had improved earlier after the Federal Reserve provided a positive assessment of the U.S. economy. Wall Street shares ended little changed overnight.

Oil and Gold: Gold launched a vicious rally towards $1342 from $1322 on the back of the weak USD following the FOMC last night. Higher interest rates tend to diminish the appeal of non-yielding gold. U.S. crude rose 0.2% to $42.02 a barrel on bargain hunting after sliding to a three-month low of $41.68 on Wednesday after news U.S. crude and gasoline stocks had surged. Brent crude gained 0.2 % to $43.55 a barrel.

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