North American Summary and Highlights 19 March
Overview -
The USD advanced into the FOMC decision but slipped back after. Rates and the median dots were left unchanged, but QT was scaled back and growth forecasts revised down, though inflation was seen higher in 2025.
North American session
Ahead of the FOMC decision, the USD extended its European gains in generally subdued trade, most notably against EUR/USD which fell to 1.0865 while USD/CAD gains came close to 1.4350.
The FOMC left rates on hold as expected and the median dots were unchanged. Growth forecasts were revised down for 2025, 2026 and 2027 but inflation was revised higher for 2025. A slowing in the pace of QT for USTs was announced for April. The market took the announcement as dovish, with equities rallying and UST yields falling, and that persisted through Powell’s press conference sending the USD lower. USD/JPY fell below 149 from around 150. Moves were more moderate elsewhere with a correction into the close, but GBP/USD rose to 1.30, and EUR/USD recovered to 1.09. AUD/USD largely erased earlier losses rising to .6350 though USD/CAD slippage was unable to breach 1.43.
European morning session
The USD gained some ground against the riskier currencies through the European morning, primarily due to concerns around developments in Turkey, where Turkish authorities have detained the mayor of Istanbul, one of Erdogan’s main rivals, on charges including corruption and aiding a terrorist group. This triggered sharp losses in the Turkish lira and the Turkish stock market, and led to losses in the EUR and AUD against the USD. CHF and JPY. EUR/USD dropped 25 pips to 1.09, while AUD/USD lost 30 pips to 0.6330. GBP and CAD were also weaker, but gained a little against the EUR and AUD. USD/JPY and USD/CHF were marginally higher.
There was little JPY impact from the Ueda press conference following the BoJ meeting. Ueda was, in our view, marginally hawkish, but the market continued to see a May BoJ rate hike as only an outside chance. Ueda once again indicated that rates would rise if the economy performed in line with BoJ forecasts, and noted that wages were rising at or above BoJ expectations, and GDP was likely to be solid in Q1. But he said there was a lot of uncertainty over the impact of US tariffs, and also that the downside risks of falling behind the curve with monetary policy were not high.
Datawise, Eurozone CPI was revised slightly lower to 2.3% y/y in February, but the core rate was unrevised at 2.6%.