USD: negative momentum is warranted - BTMU

Analysts at Bank of Tokyo Mitsubishi explained that the correction weaker for the dollar continues in the wake of the FOMC statement that provided nothing concrete to argue a change in the dollar.

Key Quotes:

"Negative momentum is warranted."

"There was never going to be any explicit signal of a rate hike and that has encouraged the continued liquidation of dollar long positions built in the wake of Donald Trump’s election victory in November. However, our take of the FOMC statement last night is that it revealed a hardening of views within the FOMC over the achievement of the inflation target.

That was very clear from the simple switching of words on the comment on inflation from “inflation is expected to rise” to “inflation will rise” to 2% over the medium term.

The dropping of the transitory factors related to energy from the inflation comment also indicates that the FOMC believes the energy lift is complete and therefore the hardening of the FOMC’s stance relates to inflation that will be domestically fuelled.

That’s a clear signal of increased confidence over a tightening labour market lifting wages to help lift domestic inflation pressures."