18 Dec 2014
US session recap: FOMC…dovish, hawkish, bullish/bearish?
FXStreet (Guatemala) - The FOMC was the highlight of the day, possibly the week and perhaps even for this final quarter of the year. We now have a slightly clearer picture as to the intentions of the Fed and when we might see an interest rate hike in the US next year.
Although there was no time line, nor was one to be expected, we are better placed to be sure that rates will remain low in a low inflationary environment and there are unlikely to be any hikes until at least the middle of 2015, or for ‘at least the next couple of meetings (next two FOMC meetings)’"
The market was initially reacting to the following taken from the statement...
"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored”.
Meanwhile, the Fed offered a bullish picture for the economy and came across a little less hawkish in their new chosen language there. The language here is “patient” which is giving them a little more flexibility. However, the key thing to consider is that there was no mention to current global market instability and, also, this is all on the presumption that cheap oil will return to higher prices and will not affect their inflation targets in 2015. But in any case, Yellen explained that cheap oil is seen as net positive for the US.
Overall, the picture was bullish for the US economy and rates will remain low for a considerable time, which sent stocks higher with S&P 500 up 40 points and creating a risk-on environment supporting the dollar and creating higher yields while weakening the value of gold by almost $10 bucks by the close.
The US dollar was volatile and dragging counterparts along with it in a similar fashion. Markets quickly latched onto the missing “considerable time” part, but then, when digesting the statement the market realised that it was in fact still there, but just disguised by the rewording. This then pressured the dollar again before investors and the world piled into a bullish outlook for the US economy despite lower oil and rates.
GBP/USD has traded to daily lows that found demand at 1.5540.
EUR/USD traded in the same style with lows at 1.2320 triggered on a two-cent range of a day.
USD/JPY was up to test the 119 handle but only reaching as far as 118.90 and settling down in a better bid environment.
AUD/USD has finally given in to the 0.82 handle with conviction the downside and reaching a cent lower to 0.8107.
Key events:
US CPI (Nov) 1.3% vs consensus 1.4% (y/y)
FOMC disguises ‘considerable time’ with ‘patience’
All FOMC members anticipate hikes in 2015
US 2015 GDP forecasts are unchanged, but inflation lower
Although there was no time line, nor was one to be expected, we are better placed to be sure that rates will remain low in a low inflationary environment and there are unlikely to be any hikes until at least the middle of 2015, or for ‘at least the next couple of meetings (next two FOMC meetings)’"
The market was initially reacting to the following taken from the statement...
"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored”.
Meanwhile, the Fed offered a bullish picture for the economy and came across a little less hawkish in their new chosen language there. The language here is “patient” which is giving them a little more flexibility. However, the key thing to consider is that there was no mention to current global market instability and, also, this is all on the presumption that cheap oil will return to higher prices and will not affect their inflation targets in 2015. But in any case, Yellen explained that cheap oil is seen as net positive for the US.
Overall, the picture was bullish for the US economy and rates will remain low for a considerable time, which sent stocks higher with S&P 500 up 40 points and creating a risk-on environment supporting the dollar and creating higher yields while weakening the value of gold by almost $10 bucks by the close.
The US dollar was volatile and dragging counterparts along with it in a similar fashion. Markets quickly latched onto the missing “considerable time” part, but then, when digesting the statement the market realised that it was in fact still there, but just disguised by the rewording. This then pressured the dollar again before investors and the world piled into a bullish outlook for the US economy despite lower oil and rates.
GBP/USD has traded to daily lows that found demand at 1.5540.
EUR/USD traded in the same style with lows at 1.2320 triggered on a two-cent range of a day.
USD/JPY was up to test the 119 handle but only reaching as far as 118.90 and settling down in a better bid environment.
AUD/USD has finally given in to the 0.82 handle with conviction the downside and reaching a cent lower to 0.8107.
Key events:
US CPI (Nov) 1.3% vs consensus 1.4% (y/y)
FOMC disguises ‘considerable time’ with ‘patience’
All FOMC members anticipate hikes in 2015
US 2015 GDP forecasts are unchanged, but inflation lower