Fed Holds Dovish Line, Focus Shifts To BoE

The Federal Reserve held its dovish line and continued to project near-zero interest rates at least through 2023 while the central bank upgraded its forecasts for economic growth and the labor market. The dot plot showed that seven of 18 Fed officials predicted higher rates by the end of 2023 compared with five of 17 at the December meeting which was a slightly larger group of ‘hawkish dots’.

As for the withdrawal of the ultra-easy monetary policy, Fed Chair Jerome Powell said in a virtual press conference that the time to talk about reducing the Fed’s asset purchases was “not yet”.

While prospects of stronger growth have ignited some concern about higher inflation among investors the Fed expects that a bump in inflation this year will be short-lived.

In a nutshell, the market did not get such a hawkish outcome leading to a shift in the current risk sentiment. Instead, the Fed’s projected policy path and its upgrade of the economic outlook provide a positive backdrop for risk assets, which is why the anti-risk dollar weakened.

Today we will have the Bank of England rate decision at 12:00 UTC. The BoE is expected to leave monetary policy unchanged but volatility could pick up around the time of the decision.

GBP/USD: The technical picture has not materially changed. We will pay attention to price breakouts either above 1.4020 or below 1.3850 and further 1.3780.

DAX: The index hit our bullish target of 14720. If there is no break above 14760, the DAX could be due to a correction now. A higher support is seen at around 14500.