Global Perspectives: Two Currencies in a Race, Both Coming in Second
Weekly commentary on international finance and economics including global events and how world issues affect our domestic issues.
Two Currencies in a Race, Both Coming in Second
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Markets were expecting a dovish tone from the U.S. Federal Reserve at its March meeting, and Fed Chair Jerome Powell certainly didn't disappoint. The Fed acknowledged slowing economic momentum and soft inflation and downgraded its economic forecast.
Additionally, the Fed signaled that it would slow the pace of its balance sheet normalization and end it completely by September. From a global perspective, a pause by the Fed gives us pause when looking at the U.S. dollar and how this changes our thoughts going forward. Those who have been following our forecasts know that we expected some weakness in the U.S. dollar after the first quarter of 2019. That view got a boost Wednesday with the Fed's moves.
What interested us was the trading action in the first few hours after the Fed meeting. There was an initial reaction of most currencies to strengthen against the greenback. The one outlier was the British pound, which lost ground as the Fed meeting happened on the same day as news broke about what the EU would accept from the U.K. in terms of a proposed Brexit delay. Essentially, pressure is building for the U.K. to either take Prime Minister Theresa May's negotiated deal, or risk a hard Brexit.
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