Long live King Dollar

The dollar soared after the Federal Reserve presented its latest decision on monetary policy. The central bank has left the interest rate and its easing programs unchanged as widely anticipated, but there was a clear hawkish shift in the economic projections. Policymakers see US GDP growing 7.0% in 2021 from a previous 6.5%and 3.3% in 2022. On inflation, PCE figure is now seen at 3.4% for this year and at 2.1% for the next one.

Policymakers reiterated that rates will remain unchanged “until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 per cent and is on track to moderately exceed 2 per cent for some time.” However, the dot plot showed that 7 Fed officials expect hikes in 2022, while 13 expect hikes in 2023. Chief Jerome Powell said that the revisions came as inflation accelerated faster and could be more persistent than expected.

Overall, Powell attributed economic progress to the vaccination campaign, and while cautious over the future, he was the most optimistic ever since the pandemic started.

Mayor pairs are challenging critical thresholds. EUR/USD stands around 1.2000 while the GBP/USD trades a few pips below the 1.4000 mark. Additional weight on the pound comes from Brexit jitters related to the Northern Ireland Protocol, however, kept limiting the pounds strength. UK negotiator David Frost asked the EU some “breathing space” to negotiate an agreement after the Union announced a ban on the sale of British sausages in Northern Ireland.

AUD/USD is nearing 0.7600 while USD/CAD soared to the 1.2000 region. Gold plummeted, currently trading around $1,829 a troy ounce, while crude oil prices also retreated and WTI stands a $71.80 a barrel.

Wall Street closed in the red, as an optimistic Federal Reserve means sooner to come tapering, although losses were contained. US Treasury yields, on the other hand, soared, with the 10-year note yield reaching an intraday high of 1.59%.

The upcoming Asian session will bring New Zealand GDP and Australian employment figures, which will add volatility to the market.