[MARKET ANALYSIS] DXY partially fades some of its oil-driven and post-FOMC spoils

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[MARKET ANALYSIS] DXY partially fades some of its oil-driven and post-FOMC spoils

[MARKET ANALYSIS] Treasuries remained subdued after yields climbed on higher oil prices and a hawkish Powell

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DXY: -0.2%

  • Mildly pulled back overnight after rallying yesterday as yields climbed alongside a surge in oil prices due to attacks on key energy infrastructure in Iran and Qatar, firmer-than-expected PPI data and with Fed Chair Powell leaning hawkish at the post-meeting press conference. FOMC kept rates unchanged at between 3.50-3.75%, as expected, in an 11-1 vote with Miran the lone dissenter, who voted for a 25bps rate cut. The Fed noted uncertainty surrounding the economic impacts from the Middle East situation and Fed Chair Powell provided hawkish-leaning comments during the Q&A as he noted there was a meaningful move of people towards fewer rate cuts, and that if progress on inflation is not seen, we will not see a rate cut, while he also stated the vast majority of participants do not see a hike as the next base case, but the possibility that next move might be a hike did come up at the meeting.

EUR/USD: +0.2%

  • Nurses some losses but remains beneath the 1.1500 handle after it gave way to the recent dollar strength, while participants also await the ECB.

GBP/USD: +0.2%

  • Partially rebounded from the prior day's trough at sub-1.3300 territory, ahead of UK jobs and wages data, as well as the BoE policy decision.

USD/JPY: -0.1%

  • Holds on to most its recent gains after climbing to its highest level in nearly 8-months, but stalled just shy of the 160.00 level, while the focus turns to the BoJ meeting, where the central bank is unanimously expected to refrain from any policy tweaks, although the attention will also be on the statement and press conference for any policy clues given that the Iran war and oil price surge has clouded the outlook for BoJ normalisation.

Antipodeans: AUD/USD +0.2% / NZD/USD +0.4%

  • Clawed back some losses with NZD/USD gradually shrugging off weaker-than-expected Q4 GDP data for New Zealand. AUD/USD was choppy following mixed jobs data in which headline employment topped forecasts but was solely due to part-time jobs, while the Unemployment Rate surprisingly climbed higher to 4.3% from 4.1% amid a higher participation rate.

Context

The DXY has pulled back slightly after a strong rally driven by rising yields and a surge in oil prices, influenced by geopolitical tensions in the Middle East and hawkish signals from the Fed. This suggests the market is adjusting to recent volatility and uncertainty, which could lead to mixed sentiment across currency pairs, particularly as traders await upcoming central bank events and economic data.

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