Yellen Leaves No Doubt She’s a Dove

Markets expected some nod toward the hawks at the FOMC, especially after Tuesday's CPI report but the undercut the dollar by offering nearly nothing. Commodity currencies and the pound were the chief beneficiaries as the dollar slumped. Those moves will consolidate as the market awaits kiwi GDP.  

Most of the risks ahead of the FOMC were tilted toward the hawkish side. The Fed could have indicated an earlier timeline for hiking or some modest worries on inflation but instead the statement was basically unchanged.

In her press conference, Yellen backed away from the rough six-month timeline for rate hikes that she introduced in March while saying inflation has been roughly as expected.

The Fed's forecast for growth this year was trimmed to 2.1-2.3% from 2.8-3.0% but Yellen underscored that temporary factors were to blame and continued to sound upbeat. Still the Fed's estimate of long-term normal growth was lowered by a tick.

The reaction was exactly what you would expect on more-dovish than expected news. Stocks rallied to a record high, Treasury yields fell and the US dollar slumped.

The Australian dollar erased the post-RBA minute slump and gained 70 pips to above 0.9400. Cable also edged above 1.7000 but once again failed to push the move.

The top performer on the day was the New Zealand dollar as it rose to the highest since May 7. The focus will stay on the kiwi with Q1 GDP due at 2245 GMT. The consensus is for a healthy 1.1% quarter-over-quarter rise (4.4% annualized). That kind of growth will continue to underpin the high-flying currency.