FX round-up: Fed's dovish stance sends traders scurrying to adjust

Janet Yellen&Co’s surprisingly dovish interest rate projections published in the previous evening unleashed sharp movements in foreign exchange markets on Thursday, as traders hurried to readjust their positions.

As of 16:50GMT euro/dollar was up by 0.72% to 1.1305, while cable was gaining 1.43% to 1.4464.

The Monetary Policy Committee kept both Bank Rate and the size of its asset purchase facility unchanged at 0.50% and £375bn, respectively, as expected, but the MPC noted the potential negative impact which the debate around the 23 June referendum might already be having on spending decisions in the economy.

Dollar/yen retreated 1.0% to end the day at 111.44, after having plumbed an intra-day low at 110.67, below the levels which saw the Bank of Japan intervene in mid-February.

Carry trade currency pairs such as Aussie and Kiwi were also bolstered, snapping higher by 0.93% to 0.7622 and 1.42% to 0.6823, respectively.

Some of the key emerging market currencies were also trading on the front-foot, as the risk of capital outflows receded alongside the Fed’s now lower projections for rates both in 2016 and in the medium-term, out to 2018.

The greenback lost 1.55% to 68.148 against the Russian ruble by the end of trading in London and another 3.14% to 3.6248 against the Brazilian real.

South Africa’s Reserve Bank unexpectedly hiked short-term rates by 25 basis points to 7.0%, while both Norway’s and Switzerland’s central banks opted to keep rates unchanged, although the former cautioned that rates might go further still in 2016.

To take note of perhaps, overnight the People’s Bank of China raised its daily fixing for the yuan-US dollar cross by only 0.32% despite the sharp selling pressure on the American unit.

The US central bank’s unexpectedly dovish stance led analysts at Macquarie to reverse their bullish call on the American currency unit on a three-month horizon.

South Korea’s won, Malaysia’s ringgit, Australia’s dollar, Indonesia’s rupiah and the Indian rupee would be the “main short term beneficiaries” of weakness in the US dollar, the analysts said.