USD weakened after Fed statement

By ending the regular meeting lasted two days 26-27th of July, almost all Fed officials agreed to postpone raising interest rates to keep track of economic indicators before deciding on policy adjustments in the next session. Up to 9/10 of votes cast in favor of unchanged interest rates at 0.25%-0.5%.

Some bright views in the FOMC statement issued after the meeting, are that the labor market has returned to strong growth, consumer increases sharply. The agency claims that short-term risks threatening the US economic outlook have disappeared. In the opposite direction, a statement said inflation is still low and this situation may continue for the short term. However, inflation will rise again when the energy prices recover and the labor market continues to improve.

Dollar Index, measuring the strength of Dollar against a basket of currencies rose 0.4% immediately after the Fed announced the results of the meeting. However, the greenback was bearish back against most of the major currencies as investors disappointed with the absence of specific signals on raising interest rates, especially plan of adjusting interest rates at the next meeting in September.

In spite of not raising interest rates in this meeting, however, Fed's assessment on the US economic situation has increased expectations of interest rate hikes in the coming months. Wall Street investors bet 20.9% chance of rate hike in September and 49.5% in December. US dollar is expected to continue to show strength in the future.

The yen yesterday witnessed volatility with the soared USD / JPY after Reuters reported Japanese government is expected to issue 50-year bonds to support big fiscal stimulus programs. However, the yen then rebounded when the Japanese Finance Ministry denies rumors related to 50-year bonds.

After the Fed meeting, the market's attention focused on the results of the meeting of the Central Bank of Japan (BOJ) to be announced tomorrow. This session will be closely monitored in the context of that the Japanese government determines to implement a huge stimulus package to revive the economy of the country. Analysts predict BOJ will ease monetary policy further and most likely the agency will increase the size of the bond purchase program from 80 trillion yen per year to 100 trillion yen while reducing interest rates on deposits from minus 0.1% to minus 0.3%.

Tonny Le

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