Heading into the FOMC meeting it was always going to be about what the Fed stated about growth which got investors’ attention. This was a point made to Benzinga by Giles Coghlan, Chief Currency Analyst, just before the meeting. You can see the key trading takeaway from that at the time here. You can also check out the USDJPY sell outlook that looked very attractive from a seasonal point of view. So, there was plenty from a trading point of view to get into at the back of the Fed meeting.

The clue in the statement

The first line of the rate statement recognised that growth was slowing when it stated that, ‘recent indicators of spending and production have softened’. However, there was not much of a reaction to this statement as it also said that the committee ‘anticipates that ongoing increases in the target range will be appropriate’.

It was the press conference where Jerome Powell showed the shift. The meetings would now be conducted on a ‘meeting by meeting basis’ to consider incoming data. Ok, it seems innocuous enough of a statement, but the context is key. In June there were signs of a slowing US economy, but the Fed stressed tackling inflation. Now the Fed recognises a slowing economy and is being more ‘data dependent’. Translated this means that the Fed will consider the pace of hikes and terminal rate depending on how the US economy fares.

The US enters a technical recession

The day after the Fed meeting the US entered a technical recession with two consecutive quarters of contracting GDP numbers.

This was the extra fuel that USD bears needed as the more signs of slowing growth then the more likely the Fed is to be less aggressive in hiking rates. This will mean that the USD can continue to retrace some of the recent gains.

The takeaway

The main takeaway from the meeting is that US growth metrics are going to be very important for the USD going forward. This week we have US ISM services and manufacturing PMI prints coming up. If it surprises to the downside then expect more USD weakness. One market that has really gained from the drop in the USD and real yields has been silver, so watch for any further silver dip buyers next week.