FX Daily: USD down but not out after FOMC

DXY did not break the year’s range on FOMC
Group Research, Philip Wee04 May 2023
    Photo credit: Unsplash Photo

    DXY delivered a muted depreciation to 101.25 at the FOMC meeting. DXY initially fell to a weekly low of 101.07 after the expected 25 bps hike to 5-5.25% and a possible pause signal in the FOMC statement. However, DXY rebounded to 101.53 after Fed Chair Jerome Powell clarified that the Fed had “not made a firm decision on whether it will stop raising interest rates.” On Tuesday, the Reserve Bank of Australia had already demonstrated what a hawkish pause meant with its surprise hike on Tuesday after it kept rates unchanged in March. Malaysia also surprised with a hike yesterday after two pauses. Despite the final drag from disappointed investors pulling US stocks and US Treasury yields lower, DXY did not break this year’s trading range between 100.8 and 105.9. Today, markets are wary that EUR/USD may correct lower if it fails to push above 1.11 after the European Central Bank dials down to a 25 bps hike at today’s meeting. On Friday, St Louis Fed President James Bullard, a hawk who favours more hikes, will share his post-FOMC thoughts. 

    Powell highlighted that the Fed needed more data to be confident that the Fed Funds Rate was restrictive enough to bring inflation back to the 2% target because the tight labour market has not cooled sufficiently. The ADP Employment Survey added 296k jobs in April, more than the 150k consensus and the 142k in March. The ISM Services PMI employment index slowed to 50.8 from 51.3. Markets will not welcome any surprises in tomorrow’s US nonfarm payrolls significantly if they rise instead of falling to 182k consensus in April from 236k in March. Consensus expects the unemployment rate to rise to 3.6% from 3.5% but sees average hourly earnings unchanged at 0.3% MoM and 4.2% YoY. Next week, consensus expects US CPI inflation to bounce to 0.4% MoM in April from 0.1% in March.

    Quote of the day
    “Inflation has moderated somewhat since the middle of last year, nonetheless inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go.”
         Fed Chair Jerome Powell on 3 May 2023

    4 May in history
    In 1979, the Conservative Party took a half page advertisement in the London Evening News to congratulate Margaret Thatcher on becoming Britain’s first female prime minister. The advertisement read, “May the Fourth Be With You, Maggie. Congratulations!”


    Philip Wee

    Senior FX Strategist - G3 & Asia

    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

    The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.

    This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.

    DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. 

    DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR

    Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply.  The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.