Patient is gone, dollar is down

Dollar was hit hard last night after FOMC turned out to be more dovish than expected.

• Dollar was down across board after publish, at one point dollar index was down more than 2% last night. Euro traded above 1.11 just from 1.063 prior to FOMC that was a near 500 point rise. Yen fell close to its support of 119.5 form above 121, made low around 119.25. Similar performance was shown by pound, it appreciated from 1.47 to 1.516. However dollar gained from those lows but sill trading at much lower rate.

FED highlights -

• FED introduced uncertainty in the policy outcome after years of forward guidance, just like it used to be in old times.
• FED remove the word patient but chair Yellen cautioned that it is not going to be impatient. Like it mentioned earlier, there will be no rate hike in April but any meeting after that.
• FED kept options open for June but stressed for data dependency.
• FOMC participants reduced forecast, except for Job growth. GDP projection for 2015 stands at 2.3-2.7% compared to prior 2.6-3.0%. Inflation measure PCE projection was revised to 0.6-0.8% compared to prior 1-1.6%. Similar revision was seen in core PCE from 1.5-1.8% to current 1.3-1.4%.
• FED showed clear worry over stronger dollar and weaker export demand.

What now?

• Dollar may suffer weakness however such could be limited as world starves with low yield, USD is offering a better return. One get paid 60 basis points to hold treasury for 2 years, whereas to hold similar German security one will need to pay 20 basis points for the privilege.
• Focus will now be more on data with special focus on payroll, wage growth, PCE inflation and GDP. If they fall farther away from FED projection dollar will be suffering.
• If dollar turns out to be too strong, FED may choose to skip June or hike at a much lower pace.