The dollar succumbed to selling after the Fed lived up to dovish expectations by committing to “at least” the current pace of balance sheet expansion nW1N2CX03R and nFWN2DN0T1 signaling rates could remain near zero for two more years.
The median SEP Fed funds forecast was 0.1% in 2021 and 2022, the 2020 jobless rate at 9.3% and PCE at 0.8%, both miles from the Fed’s full employment and 2% inflation objectives.
Even in 2021 the jobless rate is forecast at 6.5% and PCE at 1.6% nW1N2D901E.
Fed Chair Jerome Powell noted that forward guidance and yield curve control were discussed, but that policy will be updated when more information is available nW1N26P021, with the next few months key nW1N26P021.
The dollar sank, with EUR/USD clearing 1.14 and further narrowing the gap on March’s 1.1495 peak.
EUR/USD then retreated from its peaks after an S&P 500 rebound faltered.
USD/JPY cracked supports by 107 in reaction to the drop in Treasury yields and rebound in stocks nL1N2DN2A8, but 107.05-06 recent weekly lows and high are pivotal on a closing basis.
The dollar came into the NY session on the back foot in anticipation of the Fed leaning toward low rates for as long as needed and briefly weakened a bit further after U.S. CPI was a tenth below forecast nAQN02NPF7.
EUR/USD fell back from a minor new trend high following CPI after ECB board member Isabel Schnabel warned against expecting a short-duration pandemic and quick recovery, emphasizing need for ECB accommodation and EU fiscal support nF9N2BD022, but then surged after the FOMC nL1N2DN217.
A Reuters exclusive reported the ECB is drawing up a scheme to potentially create a “bad bank” to help work out non-performing loans from the pandemic nL8N2DM1R6.
Also out overnight was the OECD’s GDP forecasts, with 9.1% euro zone and 7.3% U.S. falls seen this year nL8N2DM5VB.
The Fed's assurance that it will remain supportive could bolster investor sentiment, with several riskier assets markets trading near or even above pre-pandemic levels.
The question is whether that’s enough to keep the haven dollar, yen and swissie in risk-on funding mode despite stretched technicals and valuations in the case of equities and other riskier assets.
Cable finally cleared prior resistance from the 200-DMA and 61.8% Fibo of the December-March plunge, largely on dollar weakness nL1N2DN1XL.
High-beta and commodity currencies firmed, along with commodity prices, particularly the current 3.6% rise in copper and roughly 1% gain in oil, the latter despite bearish IEA storage data nAQN02NQNC.