Stocks Loved Wednesday's Fed decision, Dollar Fell

Less hawkish than expected

Although the Fed raised the fed funds rate by 50 basis points (bps) as predicted, it took a more cautious approach in reducing its balance sheet than projected. The Fed said it would begin reducing its balance sheet on June 1, starting with a 47.5 billion USD monthly outflow cap and increasing to 95 billion USD after three months.

When questioned if the Fed was considering 75 basis point rate rises, Powell indicated they were not "actively evaluating" it and that 50 basis point hikes will stay on the table for the next couple of sessions. Since it looks like the 75bps rate hikes are off the table, the 10-year US Treasury bond yield fell more than 1%, while Wall Street's main indexes surged about 3% in the initial reaction.

"The Fed simply could not, or, better, would not, hurdle the hawkish bar that the market had set," NatWest Markets head of G10 foreign exchange strategy Brian Daingerfield said in a note.

BoE's turn now

Later today, the Bank of England will decide about monetary policy too. The Bank of England will likely raise its primary rate by 25 basis points to 1%. Still, given the lack of economic acceleration, the bank may be more conservative with upcoming tightening moves.

Heading into the decision, the GBPUSD pair has already erased all of yesterday's gains, dropping back toward the 1.25 threshold. 

Yesterday's massive rallies in stocks, bonds, and metals might be quickly reversed as the main fundamental picture remains unchanged - rates are going up fast. The same goes for the USD - Wednesday's losses might be erased today as there seems to be no alternative to the USD at the moment.

More data will come later today, including the usual Thursday jobless claims, along with nonfarm productivity and unit labor costs for the first quarter. Total vehicle sales in the USA for April will also be published.