FOMC Hiked Rates 25 bps as expected…but What happened yesterday?

March 16, 2017

Trading Ideas For The Day - Marshall's Daily Digest.

FOMC Hiked Rates 25 bps as expected…but What happened yesterday?

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EUR might gain further

EUR is on a roll as the main alternative to USD.

With the Eurosceptic PVV winning far fewer votes than expected, the market’s fears about the French election are likely to recede.

This should favor EUR.

JPY up on FED view

JPY gained after the Fed kept its rate forecasts unchanged.

I think there could be further to go for now, simply because not everyone has had a chance to jump on the trend.

AUD, NZD may weaken

AUD jumped as the Fed’s dovish stance caused a general rise in risk-on sentiment, but then started to come off on news that unemployment had unexpectedly risen in February.

AUD is recovering in early European trading but it could see some mean reversion during the day.

NZD is also starting to recover but it too could come under further pressure after its Q4 GDP disappointed.

USD falls as FED proves Dovish

The FOMC hiked rates 25 bps as expected, but presented a dovish view otherwise.

Their forecasts for interest rates this year and next were unchanged and end-2019 rose by only 12.5 ppt, or half a rate hike.

The GDP and inflation forecasts barely changed too.

The confirmation that the rise in rates would be gradual pushed bond yields down, stocks up and the dollar down all around.

CAD, JPY, most other majors rise

Most currencies gained against USD.

On a trade-weighted (TWI) basis, CAD was the biggest gainer after National Trade Council head Navarro suggested the US wants Mexico and Canada to unite in a regional manufacturing “powerhouse” that will keep out parts from other countries. (MXN also jumped.)

JPY also gained, even though the BoJ kept its ultra-loose monetary policy unchanged (as was unanimously expected) and indicated that there is little chance of a rate hike any time this year.

AUD rose on improved risk sentiment generally, but then began coming off after the unemployment rate unexpected rose in February.

EUR gained as exit polls in the Netherlands showed Dutch PM Rutte’s Liberal Party beating the Eurosceptic PVV.

The only currency besides USD to fall on a TWI-basis was GBP, which was still feeling the impact of Wednesday’s slowdown in wage growth.

OIL, GOLD up

Oil prices rose after the US Dept of Energy confirmed that crude oil inventories fell in the latest week, contrary to expectations of a rise.

Gasoline and distillate inventories also fell.

Gold and silver rose sharply as the dollar fell and fears of sharply higher US interest rates evaporated.


Today’s schedule

  • Swiss National Bank meeting
  • Bank of England Monetary Policy Committee meeting
  • US housing starts & building permits
  • US initial jobless claims
  • Philadelphia Fed business index
  • Job Opening & Labor Turnover Survey (JOLTS)
  • BusinessNZ manufacturing PMI

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