The Federal Reserve monetary policy meeting was the most important event this week, overshadowing all other news. The Forex market was anticipating stimulus reduction, which has indeed happened, but the reaction to the policy announcement was still strong as US policy makers managed to surprise market participants and to drive the US dollar up.
The dollar has started the week with softness despite risk aversion created by the tensions between Russia and Ukraine. Yet analysts expected that the US currency may yet rally after the Fed policy announcement, and such forecast did prove true. While stimulus reduction was expected and priced in, the forecast of higher interest rates, perhaps as soon as the beginning of 2015, took the market by surprise, driving the greenback higher. The confirmation of the high US credit rating should have added to the strength of the dollar, but it did not happen as the currency had exhausted its upward momentum on the massive rally earlier.
The Swiss National Bank was another central bank that has held policy meeting this week. Unlike the Fed, the SNB was not hawkish at all, hurting the Swiss franc.
EUR/USD dipped from 1.3905 to 1.3796 and GBP/USD dropped from 1.6643 to 1.6493 this week. USD/JPY advanced from 101.26 to the weekly maximum of 102.67 before closing at 102.11. USD/CHF climbed from 0.8719 to 0.8823.
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