USD Deepens Damage from Fed's Dovish Hold

The Fed stayed on the sidelines Wednesday and that led to a quick dollar rally but the sellers were waiting and it gave back the gains and more. The euro was the top performer on the day while the Canadian dollar lagged. New Zealand GDP data beat estimates.

The Fed didn't deliver any changes to the composition of its balance sheet and didn't hint at any changes. The only shift guidance was a pledge to keep up the pace of QE until “substantial further progress” has been made towards its full employment and inflation goals.

The initial reaction was dollar buying and Treasury selling but by the time of the press conference the 50-pip moves had faded and they eventually reversed and more.

See in yesterday's Premium video how Ashraf accurately called his prediction for the USD reaction (initial & subsequent to the Fed).

Powell was asked what 'substantial further progress' meant and said it was 'some ways off' and that this was 'powerful guidance'. That was enough for the market to feel reassured that zero rates will remain for years.

The Fed was far from the only news on the day. US retail sales were soft in November at -1.1% vs -0.3% expected. Stripping out various component was no help as this report showed real weakness, perhaps showing the bite from the pandemic. In recent years, spending has been pulled forward due to more online shopping but this report runs counter to that.

The SNB was also designated a currency manipulator by the US Treasury. This had been speculated on but was not the base case. However the SNB appeared to be ready and released a statement within five minutes. The Swiss franc depreciated further, suggesting that press releases weren't the only thing they were printing.

The big move on the day belonged to Bitcoin as it smashed through $20,000 for the first time and continued to $23,700 . The major technical break and continuation above the old all-time high is a sparking technical signal.

Early on Thursday, New Zealand released Q3  GDP numbers and they showed a 14.0% q/q climb compared to 12.9% expected. Incredibly, GDP is now up 0.4% year-over-year as their covid response gets a healthy endorsement in the economy. The kiwi advanced on the report.