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[MARKET ANALYSIS] DXY takes a breather after paring some of its post-FOMC spoils, while markets now await the BoJ

Post-decision consolidation of this kind is the standard second-day pattern after an FOMC that the market reads as credible: the initial dollar pop fades as front-end yields retrace, and attention shifts to Fed speakers once the blackout ends, which historically determines whether the move extends or fully unwinds.

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Japanese BoJ Interest Rate Decision 1.25% vs. Exp. 1.25% (Prev. 1%)

BoJ hikes rates by 25bps to 1.25%, as expected, with the decision made by 7-2 vote as board members Asada and Sato dissented, while BoJ says it will continue to raise rates in response to economic and price developments as well as financial conditions

[MARKET ANALYSIS] DXY takes a breather after paring some of its post-FOMC spoils, while markets now await the BoJ

[MARKET ANALYSIS] T-note futures take a breather after climbing reversing the post-FOMC drop, while JGBs climb following soft CPU data as BoJ looms

South Korea President Lee says several countries are deploying military assets near the Strait of Hormuz

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DXY: Flat

  • Trades little changed after giving back some of its post-FOMC spoils as yields eased back, with some citing improved Fed credibility as markets appeared to take greater confidence in Chair Warsh's commitment to return inflation to the target. Elsewhere, dollar-specific newsflow remains light despite a slew of US data, which ultimately failed to move the needle, while participants will get to digest rhetoric from Fed speakers following the end of the blackout period.

EUR/USD: Flat

  • Trade sideways after an attempt to nurse losses yesterday was thwarted by resistance near the 1.1500 handle, while there were some comments from ECB officials that there were currently no signs of second-round effects of inflation.

GBP/USD: Flat

  • Lacks direction after lagging yesterday post-BoE as UK yields eased from their highs after the Bank announced it would pause APF gilt sales until April 2027 and confirmed it would not sell long-dated gilts into the market.

USD/JPY: +0.1%

  • Remains underpinned after rebounding from yesterday's trough, with Japan's currency facing headwinds from softer inflation, while participants await a fully priced-in rate hike by the BoJ today.

Antipodeans: AUD/USD +0.1% / NZD/USD -0.2%

  • Price action is mixed, with AUD kept afloat amid the mostly positive risk appetite and after CNH hit its strongest level in around four years, while NZD/USD is mildly pressured after slightly weaker New Zealand Exports and Imports data.
Context

The more instructive setup is USD/JPY, where a fully priced-in BoJ hike is the classic sell-the-fact configuration; in past episodes of this kind the yen has tended to strengthen on disappointment with the guidance rather than on the hike itself, with the press conference's signal on the pace of further normalisation doing the real work. Softer domestic inflation complicates the hawkish follow-through, since it narrows the case for back-to-back moves. On the UK side, the decision to pause active gilt sales and spare the long end is a supply-side event, felt through term premium at the back of the curve rather than through rate expectations, which explains the divergence between gilts and an otherwise directionless pound. The follow-ons are the BoJ guidance, the post-blackout Fed rhetoric against the recent data run, and whether CNH strength keeps underwriting antipodean risk.

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