Fed Dovish Comments Disappointed the Market


Just like it happened with the ECB’s March meeting, also this week the eyes of the market were mainly focused on the Federal Reserve’s March meeting.

However, unlike the European Central Bank, the United States Central Bank decided to finally raise the interest rates. The expectations have been confirmed: the reference US interest rates were increased from 0,75% to 1%.

For the second time in three months, the Federal Reserve has raised interest rates by a quarter of a point thanks to the growing confidence on the US economy that seems to be ready to strengthen its growth.

Do not forget the Federal Reserve plans to touch up the interest rate by a total of three times over the course of 2017.

The market obviously was not surprised by the FOMC announcement of a rise in interest rates by 0,25%, along with the revision of the US economic outlook. However, no modifications of the projections on future rate hikes by the Central Bank members disappointed investors, causing a sharp sell-off of the US dollar. The yields on government bonds gone down, while stock markets continued to rise. And that is how EUR/USD has doubled his day hike of + 0,65% to 1,0677.

Following the news, it was the time of the press conference of President Janet Yellen. Market expectations pointed to the more aggressive future projections but the analysis of the dot-plot showed that the expectations of each member on the future of interest rates in the coming years have remained more or less unchanged from the December meeting.

Even the economic growth outlook has changed only a little. The forecast for the GDP in 2017 remains at 2,1%, while the estimate for 2018 has been revised upwards to 2,1% (+ 0,1%). The long-term growth estimates were 1,8%.

The FOMC predicted a slight rise in inflation in 2017 from 1,8% to 1,9%, but in the long run, consumer prices are expected to remain around 2%.

Subsequently, it was published the inflation figure for the month of February. Last month, the consumer price index in the United States recorded a monthly rise of 0,1%, compared with + 0,6% reported in January. Analysts had expected a 0,1%.

On an annual basis, inflation grew by 2,7%, as expected and up from the previous + 2,5%, mainly due to the recovery in oil prices.

Regarding the recovery of the euro, the thrust has not arrived only by the loss of the dollar strength but also from the elections in the Netherlands. The far-right party did not win and the country of poppies remained under the leadership of the Liberals.

Also the pound has undergone a sharp appreciation after Queen Elizabeth II signed the authorization for Brexit and the confidence of the Bank of England.

In the current week, from the 20th to the 24th of March, the economic calendar does not offer many high-impact market movers, the price action of the currencies will follow the general fundamentals and the speculation of traders.

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