Dollar Faceplants Ahead of Fed Decision

The pound shook off a weak GDP reading and the Aussie soared as the US dollar dropped yet again. On the day, AUD was easily the best performer while the US dollar lagged. Japan is off today for the Showa holiday as markets settle in ahead of the FOMC and US GDP.  Today's EURUSD trade is in progress, EURAUD deepens in the money, AUDCAD was stopped out, while NZDUSD,  GBPAUD, and EURGBP premium trades remain in progress.

Another day, another soft US data point. On Tuesday it was consumer confidence falling to 95.2 compared to 101.3 previously and 102.2 expected. The dollar had already been sagging ahead of the data but the numbers kicked off another half-cent of selling.

Cable was particularly impressive, now gaining in 11 of the past 12 sessions, touching a six-week high of 1.5336 and closing near the highs. All that came after a weak Q1 GDP report that immediately caused a 100 pip decline. The pound erased that drop within an hour and then rallied another full cent.

The Australian dollar also held a relentless bid. Yesterday Stevens said he didn't want to talk about monetary policy so close to the May 5 decision and that market took that as a sign of a lack of conviction, sending AUD/USD to 0.8030 from 0.7875. We question the wisdom of that analysis and the bond market still prices it close to a 50/50 decision but it's been impossible to fight the dollar trend recently.

That might change on Wednesday. Q1 GDP may be softer than the 1.0% consensus but it may also allow the traders to refocus on the future and the US economy isn't likely to be as soft as recent data indicates.

The Fed is a major factor as well. The tone of the statement will surely be more downbeat but that's priced in. What the Fed will be reluctant to do is take away the possibility of a hike in June or beyond and that may help the dollar find a bottom.