The Fed, meeting for the first time under Chairman Jerome Powell have hiked rates by 0.25% from 1.5% to 1.75% and forecast a steeper path of hikes in 2019 and 2020, citing the improving economic outlook for doing so. At the same time the board continued to project a total of three increases this year, signalling growing confidence that US tax cuts and government spending will boost the economy and inflation and lead to more aggressive future tightening. The statement also said that inflation, on an annual basis, is “expected to move up in coming months,” after previously saying “move up this year” and that price gains are still expected to stabilise around the Fed’s 2% target over the medium term. The markets then traded in highly volatile price action, but contained within a range ahead of Jerome Powell’s press conference. The press conference saw no real directional move although the US$ remained under some pressure heading into the NY close, ending towards session lows against most pairs and came about despite US bond yields trading higher, with the 10 Year trading up to 2.937% before closing nearer 2.90%. Although yields were firm today, the overall yield curve remains flat and this is weighing on the dollar. The US$ weakness possibly came about because Donald Trump will likely announce tariffs on Chinese imports on Friday, with the potential implications of some form of trade war. Earlier in the day, Cable was underpinned by solid jobs data, coming ahead of today’s BOE Meeting. Stocks were also volatile but without travelling too far in either direction, while the commodities rallies quite hard, with the metals up by around 1.55% and WTI up by 2.7%, underpinned by an unexpected inventory drawdown. Inventories of US crude fell by 2.622 million barrels for the week ended March 16, confounding expectations for a rise of 2.6 million barrels.
Following on from the FOMC, Asia has got off to a busy start, with the RBNZ leaving rates unchanged, as expected, with little follow-through on any directional move in the Kiwi. Next cab off the rank will be the Australian Unemployment data for February (exp 5.5%, +20K) followed closely by the Japan Nikkei Flash Mfg PMI and the All Industry Activity Index. Europe will be busy, with the Flash Manufacturing/Services/Composite PMIs, the German IFO Business Climate/Expectations the EU Current Account and Economic Bulletin, while the UK gets the BOE Meeting/Statement/Minutes/Vote Count/APP Facility and the February Retail Sales. The US will also have the Markit Manufacturing/Services/Composite PMIs flash PMIs, as well as the January House Price Index and the Kansas Fed Mfg Activity Index. Have a good day.
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