Weekly Market Update 19 Mar 2021 – USD trades higher on expectations of a strong second quarter recovery, erasing most of post-FOMC losses

Weekly Market Update 19 Mar 2021 – USD trades higher on expectations of a strong second quarter recovery, erasing most of post-FOMC losses 

1. The FOMC left target Fed Fund rates unchanged as widely expected, the announcement also echoed plans to maintain the current pace of asset purchase and reiterated that policy will remain accommodative until its long-term employment and inflation goals are achieved. The USD moved broadly lower along treasury yields on the release, but losses were erased as the week ended, on the back of the economy’s positive outlook and expectations of a strong second quarter recovery.

2. The EUR erased gains against the dollar even as the pace of the pandemic emergency purchase programme steps up. President Lagarde emphasized that economic outlook for the Euro area remains uncertain, warning of a technical recession as GDP is now expected to contract for two consecutive quarters.

3. The Bank of Japan unveiled some policy tweaks in their meeting this week, setting a wider movement range for bond yields, and scrapping a buying target for stock funds. The Yen traded higher against most major currencies, while the Nikkei slid as the central bank mentioned it will only purchase exchange traded funds linked to the TOPIX index.

4. The Bank of England kept benchmark rates and the bond buying program unchanged, as near-term economic recovery gathers pace with the speed of vaccination, but policymakers remain cautious on the medium-term outlook. The GBP weakened moderately against the dollar.