Unexpected non-Dovish FED!
FED announcement was not Hawkish, but it was not Dovish as well.
In the short term, still, it is the market reaction to FED decisions and Mr. Powell's press conference that moves the markets. The Federal Reserve's FOMC statement was not surprisingly Hawkish; however, the none-Dovish tone caused turmoil in the markets. According to the dot-plot, most committee members (13) expect the central bank to raise interest rates twice with 25 basis points per time in 2023. In addition, the statement also stated that the Fed would raise the excess reserve interest rate (IOER) and the overnight reverse repurchase interest rate to 0.15% (previously 0.1%) and 0.05% (previously 0.0%), and this policy will take effect immediately (today).
Even though the committee is still committed to holding the current benchmark interest rate (0.0% to 0.25%) and maintaining the $120 billion bond-purchase plan. While Chaire man Powell still playing down the inflation fears, saying that: "The central bank did not officially talk about reducing the size (Tapering). There are still risks in the prospect of recovery, and it's still too early to raise interest rates", and "The high degree of uncertainty in the dot plot is not conducive to the prediction of future interest rate trends.", however, the market has already accepted the Fed statement as hawkish. In response, Mellon from the Bank of New York said that actual interest rates might rise as the number of interest rate hikes increase and further help the dollar.
Besides Interest rates and monetary policies, the bank also published its outlook and economic projection from 2021 to 2023.
In terms of GDP, the Fed raised its forecasts for 2021 and 2023 to 7.0% and 2.4%, respectively, from 6.5% and 2.2% before, and to remain unchanged at 3.3% for 2022. The unemployment rate is expected at 4.5% by the year-end but is likely to fall to 3.8% in 2022 (previously 3.9%) and reach 3.5% in 2023. and finally, for inflation, PCE and core PCE are expected to rise above 3.0% this year but will remain at 2.1% to 2.2% in 2022 and 2023. (Check the bellow chart, please).
Dollar reaction and Expectation!
While DXY closed at 91.50 and gained more than 1.1% last night, today kept its gain by trading at 91.62 is 0.45% higher. The U.S. 10-year bond yield also recorded a rise of 9 basis points and stood at the level of a week ago, at 1.58%. Fundamental signs still supporting more uptrend, as Repo and IOE rates raised by FED and Core PCE still will be above FED expectation in 2023. From the technical side, Price could move above OBV trend line 91.30, as a critical level, and RSI at 68, all signals supporting the uptrend. 91.00 is the pivot point, and above this level can go forward. Above the current level as the first resistance, we can see the second and third resistance at 92.00 and 92.65. On the flip side, breaking under the pivot point will change the trend.
