FOMC raise interest rate to 1.5%, DJIA rises, U.S. dollar slumps on Fed outlook, gold spikes to reach $1255 per ounce
As widely expected the FOMC raised the upper bound interest rate to 1.5%, the Fed’s committee also confirmed that it would begin to reduce it’s massive $4.5 trillion balance sheet, by $20b a month, beginning in February 2018. The FOMC also committed to repeat the exercise witnessed in 2017; raising interest rates three times in 2018.
During the public meeting, held after the rate rise announcement was revealed, the FOMC through the outgoing chair of the Fed Janet Yellen, cited the reasons for the rise. In short the Fed have confidence in the strength of the labour market, are not overly concerned by inflation dropping to 1.7% YoY and believe that overall the USA economy is in a very strong position to weather incremental interest rate rises; they expect GDP to rise to 2.7% in 2018. The aim of the Fed appears to be to take the upper bound rate up to circa 2.25%, by the end of 2018. Perhaps such a programme is not as aggressive as many analysts had expected, which could have been one of the contributing reasons why the dollar sold off sharply, after the rate rise was announced. The other reason being the cooling inflation, which is unlikely to accelerate any further rate rises, if inflation continues to remain below the 2% target in 2018.
U.K. economic calendar news centred on the latest employment and unemployment figures; the unemployment rate remained steady at 4.3%, whilst the economy unexpectedly lost -56k jobs. Wages showed a modest improvement, rising to 2.3% growth year on year. The U.K. pound experienced whipsawing versus the majority of its peers, mainly in evening trading as the U.K. government lost a vote in the House of Commons, which now have the power to decide on any final permission to enact and approve the final Brexit deal. This vote represents a major concession and blow to the Tories and prime minister May, as she approaches another deadline day in Europe later this week with the E.U. 27, who must now be viewing her Brexit management as completely chaotic. Sterling rose versus the U.S. dollar due to dollar weakness, as opposed to sterling strength, whilst the U.K. FTSE 100 index slipped marginally on the day.
Eurozone economic calendar news was generally bullish; industrial production in the single currency bloc has risen by 3.7%, beating the expectation of 3.2%. German inflation (CPI) remained unchanged YoY at 1.8%. Eurozone employment also grew by 1.7% YoY, when measured over the third quarter. Despite the positive economic news, the main Eurozone equity indices fell on the day, Germany’s DAX index by 0.44%.
EUR/USD traded in a wide bullish range throughout the day, rising through R2, ending the day up circa 0.7% at approx. 1.183. EUR/GPB initially fell during the morning session, only to reverse in the afternoon session, closing the day out at circa 0.882, flat on the day and resting near to the daily PP. EUR/CHF closed the day out up circa 0.1%, after initially falling by 0.2% and threatening to breach S1.
GBP/USD traded in an increasingly wide bullish range throughout the day’s trading sessions, rising through R1 shortly after the London/European market opened, to then rise through R2, closing out up circa 0.6% at 1.341. Other than this rise the U.K. pound experienced whipsawing conditions and losses versus the majority of its peers.
USD/JPY crashed through S3 to end the day down circa 1.4% to approx 112.72, USD/CHF also collapsed during the day’s trading sessions, breaching S2 and closing down circa 0.7% at 0.985. USD/CAD whipsawed through a range with a bearish bias, ending the day down circa 0.4%, at 1.281.
XAU/USD enjoyed a rally not seen in several weeks, as the security has found itself in a downtrend since late November, rising to breach R3 at one stage in the day’s proceedings, before giving up some gains, to end the day up circa 0.8% at 1254.
EQUITY MARKETS SNAPSHOT FOR DECEMBER 13th.
• DJIA closed up 0.33%.
• SPX closed down 0.05%.
• NASDAQ closed up 0.20%.
• FTSE 100 closed down 0.05%.
• DAX closed down 0.44%.
• CAC closed down 0.51%.
KEY ECONOMIC CALENDAR EVENTS FOR DECEMBER 14th.
• CHF SNB 3-Month Libor Upper Target Range (DEC 14).
• EUR Markit/BME Germany Composite PMI (DEC P).
• EUR Markit Eurozone Composite PMI (DEC P).
• GBP Retail Sales Ex Auto Fuel (YoY) (NOV).
• GBP Bank of England Bank Rate (DEC 14).
• EUR European Central Bank Rate Decision (DEC 14).
• EUR ECB President Draghi holds news conference in Frankfurt.
• USD Retail Sales Advance (MoM) (NOV).
• USD Markit US Composite PMI (DEC P).