Dollar Slides with Doves Ruling the Roost at the Fed

Dollar Hammered as Fed's Bostic Turns Dovish

Hawks at the Federal Reserve keep morphing into doves, hammering the greenback.

Several comments from the central bank yesterday expressed a cautious view of interest rates. It started with Atlanta Fed President Raphael Bostic, who warned that economic fears have forced companies to delay investments.

That’s “not consistent with the business sector ramping up,” he told a conference in Chattanooga, Tennessee. Bostic, who left the interest-rate-setting committee this year, was hawkish as late as October 23.

Minutes from the Fed’s last meeting on December 19 also show a more cautious stance, echoing Chairman Jerome Powell’s statement at the time. Policymakers can “afford to be patient about further policy firming,” read the statement released yesterday afternoon. “The appropriate extent and timing of future policy firming [ is ] less clear than earlier” projected.

Language like that pushed the U.S. dollar index (@DX) to its lowest level in almost three months. The greenback continues to break down from a triangle that appeared in late 2018.

U.S. Dollar Index (@DX) with broken triangle and one-day changes.

Euro futures (@EC) jumped after his comments, following the upward path anticipated on Monday’s Market ActionWeak-dollar assets like precious metals and Latin American equities also pushed higher.

The Fed is shifting to easier monetary policy after raising rates last year the most since 2005. The change first appeared in November after equity markets crashed and President Trump called for an end to rate increases.

Wednesday also brought comments from three other officials who just gained voting rights on the Open Market Committee. James Bullard of the St. Louis Fed, who’s been dovish for the last two years, said rates were currently at “a good level” and didn’t need to increase further.

Charles Evans of the Chicago Fed said central bankers can “wait and carefully take stock of the incoming data.” Throw in similar comments from Boston’s Eric Rosengren, and the doves had a 5-0 sweep yesterday.

In conclusion, U.S. central bankers continue to abandon a policy of higher interest rates. And, the change is starting to impact a wide range of assets across the market.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.