US FX WRAP: Dollar gains on hawkish Fed statement dissent and Powell sounding hawkish on peers

The dollar strengthened on a hawkish dissent from 3 members on the Fed's statement language as well as Powell speaking hawkish of some of his peers. Rates were held as expected at 3.50-3.75%, with Miran unsurprisingly calling for a 25bps cut. Interestingly, Hammack, Kashkari, and Logan did not support the inclusion of an easing bias in the statement at this time, while Powell said non-voters preferred this route as well (didn't specify amount), but he does not think they need to do it at this meeting. Powell added that a number of members are seeing a hike as likely as a cut having moved up. A hawkish reaction was seen towards the statement, which extended after Powell announced he will stay on the board after his term as Chair until the investigations is well and truly over, bolstering Fed independence and likely giving incoming Chair Warsh a tougher time to push for his preference for easing. In other news, geopolitical developments supported the USD as Trump reportedly is leaning towards extending the blockade on Iran while the CENTCOM has reportedly prepared a plan for a short and powerful wave of strikes, aiming to break the standstill in talks. Separately, US data (housing start miss, durable goods beat) resulted in the Atlanta Fed maintaining its Q1 real GDP growth estimate at 1.2%. DXY peaked at 99.05 before retreating to ~98.91.

AUD underperformed, weighed on by the stronger USD on a hawkish Fed and geopolitical developments as well as a softer-than-expected March inflation reading, +1.1% M/M (exp. 1.3%). AUD/USD broke below last week's low, now trading around 0.7108.

CAD outperformed in the G10 space, little changed vs USD in the aftermath of the BoC holding rates, as expected. The resilience was more of a function of the move higher in the oil prices, as seen by the upward revisions in the BoC's growth forecasts for 2026 & '27, noting "since Canada is a large net exporter of oil, higher oil prices increase national income even as consumers are squeezed by higher gasoline prices". 

EUR and GBP saw similar weakness against the dollar ahead of their central bank announcements. For the ECB, the relatively limited amount of data, no overt signs of second round effects and uncertainty on the duration of the shock and degree of pass through mean the ECB is likely to maintain its interest rates and hold the Deposit Rate at 2.00%. Click here for the ECB preview.

The BoE is expected to hold rates, justified by the lack of clarity on the duration and size of the Middle East shock, with particular respect to second round effects. Click here for the BoE preview.

On the EMFX, BCB is overnight whereby they are expected to cut by 25bps.