FOMC keep rates on hold, U.S. equities rise, Trump appoints Powell as new Fed chair, Swiss franc and yen fall, DAX reaches record high
As forecasted by certain economists, who were polled by news agencies, the FOMC decided to keep the U.S. key interest rate on hold, at 1.25%, with a view to revisit the issue in December. The market reaction was subdued; EUR/USD and GBP/USD maintained similar levels to that seen before the announcement, with USD/JPY and USD/CHF making marginal gains. However, yen and the Swissie had experienced falls versus their peers earlier in the day, therefore any USD daily gains may have been priced in pre the announcement. An announcement on who will be the Fed’s next chair was due by the end of the week, with current board member Jerome Powell rumored to be preferred by Trump, over John Taylor. However, in a surprise move, the announcement was brought forward, with Powell announced as Janet Yellen’s replacement on Wednesday evening. He’s considered to be more dovish, therefore a slower pace to the suggested rate rise program will probably take place in 2018 and the quantitative tightening will now likely be as slow as “watching paint dry”, to paraphrase current (and now outgoing) Fed chair Janet Yellen.
The U.S. equities markets edged higher on Wednesday, despite many investors beginning to become impatient with regards to the intended tax reduction plan which, despite being a key part of the Trump election commitment and having provisional clearance from U.S. lawmakers, is so far devoid of any detail. Other U.S. fundamental news concerned; the ISM manufacturing reading which came in below forecast at 58.7, the ADP payroll figure beat expectation, coming in at 235k and perhaps indicating that the NFP payroll data, to be published on Friday, will be in line with the forecast of circa 312k jobs created in October.
U.K. fundamental news was thin on the ground, nationwide house prices beat the prediction by coming in at 2.5% YoY, whilst the U.K. manufacturing PMI also beat the expectation of 55.9, printing at 56.3. Sterling made moderate gains of circa 0.2% versus CHF and JPY, but slipped versus the majority of its other currency peers, other than moderate gains versus the euro. FX investor focus appears to be centered on the BoE/MPC rate announcement meeting at midday Thursday, the expectation of a rate rise, of 0.25% to a base rate of 0.5%, is the general consensus.
Germany’s DAX index experienced the biggest gains of any major European bourse on Wednesday, up 1.78 percent in the sessions. The DAX rallied after being closed for trading Tuesday, Volkswagen led the gains, its value hitting pre-emission scandal levels for the first time, closing up by approx. 4.8 percent on the day, after a price upgrade and upbeat sales data.
USD/JPY whipsawed in a tight bullish range during the day, rising through R2 to a three and a half month high, the currency pair often simply referred to as “yen”, ended up circa 0.6% on the day at 114.15. USD/CHF rose by circa 0.7%, breaching R2, taking out the key 1.000 handle, closing out the day at circa 1.003. USD/CAD slipped marginally, ending the day’s sessions down circa 0.1% at 1.2870, just below the daily pivot point.
Similar to other major pairs, the EUR/USD whipsawed throughout the day, rising up through the daily pivot point, before reversing the daily trend, breaching S2 during the European trading session, to end the day down circa 0.6%, at 1.1616. EUR/GBP fell through S1, to then claw back some losses to end the day down circa 0.2% at 0.8768. Versus CHF and JPY the euro rose, breaching R1, versus CAD, AUD and NZD the euro lost an average of 0.3% on the day.
GBP/USD initially breached the daily pivot point upwards, then fell to close out the day at circa 1.3248, down approx. 0.1%. Versus NZD, AUD and CAD (similar to the euro) the U.K. pound fell by on average 0.2% during the day’s trading sessions. GBP/CHF ended the day up circa 0.3%, at approx. 1.3285, breaching R1. GBP/JPY finished the day at approx. 151.21, up circa 0.2%.
EQUITIES AND COMMODITIES SNAPSHOT FOR NOVEMBER 1st
• DJIA closed up 0.25%.
• SPX closed up 0.16%.
• FTSE 100 closed down 0.07%.
• DAX closed up 1.78%.
• CAC closed up 0.20%.
• Gold rose by circa 0.4% to $1276 per ounce.
• WTI oil fell by approx 0.3% to $54.32 per barrel
KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 2nd
• EUR German Unemployment Claims Rate s.a. (OCT).
• EUR Markit Eurozone Manufacturing PMI (OCT F).
• GBP Markit/CIPS UK Construction PMI (OCT).
• GBP Bank of England Bank Rate (NOV 02).
• GBP Bank of England Inflation Report.
• USD Initial Jobless Claims (OCT 28).
« The BoE are odds on to raise U.K. base rate on Thursday, will it signal a tightening of monetary policy, or will it be a one off inflation cooling measure? The October NFP number is expected to bounce back when released on Friday, after the -33k ‘hurricane season’ number recorded for September »