Cautious Fed are no help to Draghi
The US Dollar tried to take back ground overnight after moving to multi week lows against a plethora of currencies. This came following the Federal Reserve decision to keep interest rates on hold and pull back the long term growth outlook.
Many opinions were divided over whether the Fed would increase interest rates yesterday, the announcement triggered broad dollar selling causing losses to the greenback, though the Fed left the door ajar to the possibility of a rate increase later this year.
The US dollar index that tracks the currency against six major currencies edged up about 0.1 percent o 94.634, after dropping as low as 94.360 on Thursday, its lowest since Aug. 26.
Despite some encouraging domestic signs, Fed Chair Janet Yellen said the external outlook was less certain. “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the U.S. central bank said.
Moving forward, we do not have much to look to from a fundamental perspective so we take a broader view into next week. Wednesday is the next central bank day of focus when Mario Draghi will be holding a press conference at 2pm. Since the holding of the interest rate last night in the States, the decision puts more pressure on the European Central Bank – the reason being that the best way for the ECB to weaken the single currency to boost exports, lending and ultimately stimulate their economy is for the FED to hike, resulting in a shift in sentiment and reversing the recent “safe haven” status the Euro has been labelled with.