[MARKET ANALYSIS] DXY takes a breather after rallying on the hawkish FOMC

DXY: -0.1%

• Took a breather after strengthening on the back of the FOMC statement and dot plots, which saw 9 members see at least one hike by year's end. The Fed held rates, as expected, and delivered a completely new statement in Warsh's inaugural meeting as the Chair. Whilst the statement omitted forward guidance, markets felt the outlook was provided through the dot plots, namely, many members seeing hikes this year and rates remaining higher from current levels through 2027. A prompt hawkish reaction was seen across markets, furthered by the language addition within the statement that "The Committee will deliver price stability", whilst mentions on the labour part of the mandate were limited, showing a heavy inflation tone skew. Warsh maintained this throughout his press conference and refrained from the dovish image some had anticipated, and in particular, he mentioned productivity growth, but did not try to argue that AI productivity growth would enable potential cuts. Warsh doesn't believe they have a cruel choice between full employment and stable prices, suggesting he potentially views employment as stable at current levels, with the Fed's current fight solely on inflation. DXY rallied to 100.57 from the 99.65 seen before the rate announcement, while money markets returned to fully pricing in one 25bps rate hike by year's end.

EUR/USD: +0.2%

• Regained some composure after briefly sliding to sub-1.1500 territory in the aftermath of the FOMC.

GBP/USD: +0.2%

• Partially rebounded after falling to a two-month low, but with the recovery limited as participants now look ahead to UK jobs and wages data, the BoE policy meeting and the Makerfield by-election, which could pave the way for Manchester Mayor Burnham's return to parliament and PM Starmer's ousting.

USD/JPY: Flat

• Lacks conviction overnight after climbing yesterday as the buck strengthened on the hawkish Fed, although price action remained confined to within the 160.00 handle, while officials continue their mild jawboning withChief Cabinet Secretary Kihara stating that Japan's government is monitoring FX markets closely and will respond to FX moves as needed.

Antipodeans: AUD/USD +0.3% / NZD/USD +0.5%

• Antipodeans are on the mend and are around halfway to recovering their post-FOMC losses, with mild outperformance in NZD/USD following Q1 GDP data, which accelerated and showed stronger-than-expected Y/Y growth of 1.5% (exp. 1.1%).