USD under pressure following the disappointment from the FOMC - BBH

Analysts at BBH explain that the US dollar remained under pressure in Asia following the disappointment that the FOMC did not signal a more aggressive stance, even though it delivered the nearly universally expected 25 bp rate hike. 

Key Quotes

“News that the populist-nationalist Freedom Party did worse than expected in the Dutch elections also helped underpin the euro, which rose to nearly $1.0750 from a low close to $1.06 yesterday.  European activity has seen the dollar recover a little, but the tone still seems fragile, even though US interest rates have stabilized and the 10-year Treasury yield is back above the 2.50% level.”

“The US premium over Germany on two-year money peaked a week ago near 2.23.  After the US yield had fallen in response to the Fed's move, the spread finished near 2.12%, from which it has not moved far.  Initial euro support has been found a little above $1.07.  The first retracement target of the run-up is a little below there at $1.0690.  The other retracement targets are seen near $1.0675 and $1.0655.”

“Few expected Wilders in the Netherlands to have a say in the next Dutch government.  He drew about 13% of the vote and will hold about 20 seats, which is five more than currently.  Prime Minister Rutte's party appears to have received the most votes and won 33 seats, down from 41.  The other coalition partners did worse.  In particular, the disastrous showing of Labor means that Dijsselbloem, the current finance minister and head of the Eurogroup of finance ministers, is unlikely to hold his post.  Labor may have less than 10 seats in the new parliament, down from 38.  The other coalition partner, Liberals, lost eight seats.”

“The new parliament will sit in a week and negotiations for a new government will begin.  It will take some time.  The last election (2012) took 54 days to sort out, while in 1977 it took more than 200 days to form a new government.”