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CommerzBank

USD: Less monetary, more politics – Commerzbank

The US Dollar’s response to the recent Fed meeting was muted, with EUR/USD approaching 1.20. The Fed’s signals suggest a key interest rate cut in March is unlikely, as growth is now described as ‘solid.’ However, the market’s focus on political questions during the press conference indicates a potential shift in perception regarding the Fed’s independence, report Commerzbank analysts Volkmar Baur and Michael Pfister.

Fed meeting impacts US Dollar

“Overall, however, the market seemed to focus more on the somewhat hawkish leaning comments and adjustments. Expectations of further interest rate cuts were adjusted slightly downwards, but in such a marginal way that it is unlikely to move the currency.”

“The fact that politics seems to be slowly creeping into the Fed, or at least that this is how it is perceived by the market, was also evident in Christopher Waller’s vote in favour of a further cut in the key interest rate.”

“Ultimately, even if the Fed can actually continue to pursue an independent monetary policy, this can become a problem. If the market no longer believes it, the US dollar will suffer.”

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