• Fed: focus on the positive
  • Euro lowest since May
  • Three’s company at the BoE
  • CAD tumbles with oil

The dollar moved higher Thursday morning after the FOMC raised interest rates Wednesday afternoon. As expected, the Fed raised its benchmark interest rate up from 1% to 1.25%. The Fed’s projections for another hike this year were largely unchanged from the previous meeting, and you can read the highlights on our blog. We note a remarkably positive tone towards the inflation outlook despite CPI inflation recording the biggest drop in 16 months this week. Fed chair Janet Yellen said that they are closely monitoring these figures, but she continues to expect the record low unemployment to put upward pressure on inflation as the labor market continues to tighten.

Euro is at a two-week low against the dollar this morning. French inflation came in slightly below expectations, 0.8% vs. 1.2% expected on an annual basis. The euro area balance of trade also came in lower than expected, but we see this move as more a story of dollar strength than euro weakness. The Fed’s commitment to dismissing weakness at the start of the year seems to be bleeding into investor sentiment. Refraining from any mention of this weakness, the Fed said that economic growth “has been rising moderately so far this year.”

The pound is on a roller coaster this morning, and we may see this yet continue. Disappointing retail sales pushed sterling lower overnight, but changing stances within the Bank of England pushed the pound up a full cent against the dollar. The BoE kept UK interest rates at record lows, but the June meeting revealed a shift amongst policymakers. Three members voted for raising interest rates, pushing the 1-7 split to a 3-5 break. Later today, BoE Governor Mark Carney is due to give a speech to bankers in London, and his tone towards policy may introduce fresh volatility for GBP/USD.

Canadian dollar is coming under pressure once again off the back of a dip in oil prices. Crude oil fell to a six-week low this morning, just narrowly avoiding a six-month threshold as oversupply concerns continue to plague the market. OPEC’s efforts to curb the global supply glut are floundering. Inventories remain near record highs in many parts of the world, and investors seem unconvinced that OPEC’s cuts will meaningfully impact them. Major producers like Saudi Arabia have aggressively curbed production, but their efforts are being undermined by Libya and Nigeria. These two OPEC members are exempt from the cuts, and have increased production just as US producers ramp up drilling and rig counts.

EURUSD: Euro at a two-week low against the dollar as the greenback extends gains after yesterday’s FOMC meeting

GBPUSD: Pound recovered from weaker retail sales thanks to a more aggressive movement within the Bank of England.

AUDUSD: Despite rosy job figures, Aussie dollar is weaker as the USD continues to gain ground.

USDCAD: Canadian dollar weaker after oil prices fell to a six-week low.

USDJPY: Yen weaker as the USD continues to move higher after the Fed kept a positive outlook for the US economy.