This week's FOMC meeting, and Yellen’s final appearance as Fed Chair went broadly as expected. The Fed left interest rates unchanged but indicating that a March rate hike was on the table. The statement highlighted firming inflation and solid economic data. There were some minor tweaks in the statement language but nothing material. Yet, overall, the meeting was mildly hawkish.
Incoming Fed Chair Powell will likely take over where Yellen has left off. Hiking interest rates at his first meeting. Elsewhere ADP reported a 234k increase vs. 185k exp. in private employment during January. Today’s payroll report could be the catalyst for USD corrective rally.
Current explanation on why USD is so weak are unsatisfactory. US economic acceleration is outpacing expectations, with data consistently surprising to the upside. While talk of normalisation at the ECB and BoJ are in infancy stage.
Despite the obviously improvement of the USD economic and political environment, USD continues to be sold-off. With ADP suggesting significant upside in today’s NFP 180 expectation. A tighter labour market will have investors increasing bets on a fourth interest rate hike. We are increasingly concerned about USD ultra-weakness and increased probably of a USD correction, especially considering elevated US rates.
CHF and JPY are the two currencies we suspect USD could see big gains from in the short-term.