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Bank of England Expected to Hold

The USD dropped versus majors after the much anticipated rate hike at the end of the March Federal Open Market Committee (FOMC). The Fed raised rates by 25 basis points as expected, but did not alter economic projections and Fed Chair Janet Yellen was less hawkish than the market expected given her comments in the buildup to the policy meeting.

A week filled with central bank activity continues with the Bank of Japan (BOJ) policy rate in overnight trading to be followed by the Swiss National Bank (SNB) on Wednesday, March 16 at 4:30 am EDT (8:30 GMT) and the Bank of England (BoE) to publish its monetary policy summary at 8:00 am EDT (12:00 GMT).

The BoE is forecasted to keep the interest rate and QE amounts unchanged. Higher inflation mostly driven by food and energy prices will give fodder to the hawks that will be reflected in the minutes of the meeting published at the same time as the statement. Brexit anxiety is high with the U.K. government planning to trigger Article 50 on Tuesday will be on the minds of BoE members as Scotland is calling for a second independence referendum within a two year time frame.

The EUR/USD gained 0.622 percent in the last 24 hours. The single pair is trading at 1.0682 after the U.S. Fed raised the benchmark interest rate by 25 basis points as was expected. Members of the Fed cautioned the market that its views on the March FOMC meeting were offside back in February which was a strong hint a rate hike was coming. The EUR/USD had already priced in the telegraphed rate decision, with investors keeping a close eye on the economic projections and press conference with Chair Yellen.

The USD lost traction as the rate statement, economic projections and Yellen’s comments were less hawkish than expected given the guidance given by the Fed ahead of the March meeting.

The EUR was not able to appreciate as much as other majors on the eve of the Dutch elections. The uncertainty around the result has put a downward pressure on the currency given the probability of Freedom Party candidate Geert Wilders’ victory. Brexit and U.S. election’s polls have steered markets wrong in the last 9 months so its no surprise investors are anxious about the result. A Wilders win could pave the way for more far-right victories in particular looking ahead at the French elections in April.

The USD/JPY lost 1.04 percent on Wednesday’s trading session. The currency is trading at 113.52 after the release of the FOMC rate statement. The USD was on the cusp of breaking the 115 price level ahead of the announcement, but is near session lows at 113.52 as the Fed maintained its economic forecasts despite growing optimism about the U.S. economy elsewhere.