Quasi-dovish Fed can’t keep the dollar down for long

The US dollar has bounced back from its brief drop after the FOMC’s policy announcement and Chair Powell’s press conference, and is ending the week stronger across the board. To some extent that is surprising: the FOMC’s overall message arguably had a dovish slant, at least relative to expectations ahead of the meeting, and both bond and equity markets have held on to most of their post-FOMC gains. In large part, we think the dollar’s rebound reflects the more explicitly dovish stance of other major central banks – in particular the SNB (which cut its policy rate) and the BoE (which sent a clear signal that rate cuts are drawing nearer). In addition, the BoJ’s much anticipated exit from negative rates and Yield Curve Control (YCC) failed to boost the yen, and the PBOC’s apparent decision to let the renminbi weaken sharply today has added to the overall dollar-positive tone, with other currencies falling in response to the drop in the renminbi. Overall, the greenback heads into the Easter holiday period firmly on the front foot, and continued solid US economic data (or, for that matter, further uncertainty around the PBOC’s intentions) is likely to keep it that way.