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Forex: Fed drops ‘patient’ guidance – dollar initially weaker

The initial reaction to the Fed’s decision to drop the reference to being ‘patient’ in its post-meeting statement has been for the dollar to weaken, seemingly on a classic “buy the rumour, sell the fact” move. Although the wording, introduced at their December meeting, has been removed, the Fed have underlined that “This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range”. This is another reason for the weaker dollar, with the Fed down-playing the growing perception that the removal of the phrase would indicate steady policy for only one meeting ahead.

Volatility was always assured at this meeting, with the initial push above the 1.07 level on EURUSD putting it some 60 pips above pre-announcement levels. What remains important from here is the recent strength in the labour market being sustained and longer-term inflation expectations continuing their steady improvement. For now at least, the dollar rally may pause for breath on the Fed’s new stance.

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