U.S. dollar falls as FOMC announce interest rate maintained at 1.25% and commit to unwinding the Fed’s balance sheet

Jul 27 • Morning Roll Call • 1532 Views • Comments Off on U.S. dollar falls as FOMC announce interest rate maintained at 1.25% and commit to unwinding the Fed’s balance sheet

As widely expected, the FOMC announced that the key interest rate in the USA would remain at 1.25%. In their follow on statement accomplishing the announcement, the committee aired concerns that inflation is below the target of 2%, whilst also committing to begin ‘unwinding’ from the $4.5 trillion balance sheet, a process scheduled to begin in September.

The Fed’s assets grew exponentially, as a consequence of the asset/bond purchase scheme (a form of quantitative easing), the central bank engaged in after the 2008 crises. A program that was eventually halted in October 2014. Other than the high impact FOMC decision and statement, Wednesday was a relatively quiet day for USA economic news; new home sales slipped marginally, whilst crude oil inventories fell substantially, causing the WTI price to rise.

USA equity markets reacted positively to the FOMC statement, the DJIA closing up 0.45% to a new record at 21,711, SPX up 0.03% and the NASDAQ up 0.16%. The dollar index fell by approx 0.4%, to reach its lowest level in a year, USD/JPY fell by circa 0.3% to S1, ending the day at circa 111.74. GPB/USD breached R2, shortly after the FOMC statement, ending the day at circa 1.3118, up approx 0.7%.

In a positive day for the euro versus its major peers, EUR/USD closed in on R2, without breaching the level, up approx 0.5% at 1.1735, the highest level seen since January 2015. USD/CAD fell through S3 shortly after the statement, closing the day out at circa 1.2458, the lowest level reached since June 2015. WTO oil ended up circa 1.7% at $48.74 per barrel, whilst in a (negative) correlation versus the U.S. dollar’s fall, gold advanced at one stage in the New York session to a high of $1262 per ounce, the highest level witnessed since the third week in June.

European news on Wednesday focused mainly on the UK’s latest GDP announcement, coming in as forecast at 0.3% for Q2 2017, reducing the annual growth from 2% to 1.7% and a projected 1% growth for 2017. Loans for home purchases came in at approx 40,200, just above expectations, but significantly short of the loan volume back at the height of 2007/2008, when mortgage loans were peaking at over 100,000 per month. With no other medium, or high impact news broadcast from Europe, the main European indices rallied; STOXX 50 closing up 0.51%, CAC up 0.56%, DAX up 0.33% and the UK’s FTSE up 0.24%.

Economic calendar news for July 27th, all times quoted London (GMT) time

00:00, currency impacted EUR. German Retail Sales (YoY) (Jun). The forecast is for a rise of 2.7%, from the 4.8% growth registered in May.

06:00, currency impacted EUR German GfK Consumer Confidence Survey (Aug). The prediction is for a reading of 10.6, unchanged from the previous month’s reading.

12:30, currency impacted USD. Durable Goods Orders (Jun P). Orders are expected to rise to 3.5%, from the unexpected fall of -0.8% in May.

12:30, currency impacted USD. Initial Jobless Claims (Jul 22). The forecast is for a rise of 240k, from the 233k registered in the previous week.

12:30, currency impacted USD. Advance Goods Trade Balance (Jun). The trade balance deficit is expected to improve moderately to -$65.5b, from the -$66.3b recorded in May.

12:30, currency impacted USD. Wholesale Inventories (Jun P). The prediction is for a rise of 0.3% in June, from 0.4% in May.

12:30, currency impacted USD Retail Inventories (MoM) (Jun). The expectation is for a rise similar to the 0.6% rise recorded in May.

23:01, currency impacted GBP. GfK Consumer Confidence Survey (Jul). The forecast is for a modest fall to -11, from the -10 recorded in June.

23:30, currency impacted JPY. Jobless Rate (Jun). Japan’s jobless rate is predicted to fall to 3.0%, from 3.1% in May.

23:30, currency impacted JPY. National Consumer Price Index (YoY) (Jun). Japan’s CPI is expected to remain unchanged at 0.4%.

 

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