Fed holds rates unchanged, delivering dovish message

Friday, September 18, 2015

The Federal Reserve held interest rates unchanged at the latest FOMC meeting, with Fed Chair Janet Yellen delivering a “dovish” message. The statement identified that the recent global economic and financial conditions may restrain economic growth and added further downside pressure on US inflation in the short-term. Still, there was opposition from Richmond President Lacker who desired a 0.25% increase while the other 13 Fed members still expect an interest rates increase this year. The USD index retreated towards 94.0 against a basket of currencies, remaining under heavy pressure.  

The EURUSD rallied to a three-week high above 1.1400 following the announcement and ended the session at 1.1435. Furthermore, USDJPY plunged from 121.00 to 119.30. US equity markets ended lower, following a very volatile trading session. The Dow Jones index retreated by 0.40% towards 16,670, while the S&P 500 index slid lower by 0.26% to retest 1,990.  

There has been so much uncertainty surrounding the recent FOMC meeting, while it seems that there will always be reason for the US Fed not to increase rates. Recent concerns highlight the Greek debt crisis and Eurozone’s economic stability, the recent Chinese slowdown and the strong USD rally which could further delay an interest rate hike. Market participants will await October’s meeting for further clarification regarding the timing of rates increase.

USD index comes under renewed pressure

DXY Curncy (DOLLAR INDEX SPOT)   2015-09-18 09-02-45

Asian equity markets were mixed. The Hang Seng index gained 0.12% towards 22,000 while the Shanghai Composite index added 0.38% to retest 3,100. However, the Nikkei index declined nearly 2% towards 18,070. This morning, European equity markets remained in negative territory as the DAX, CAC, IBEX and London equity benchmark indices dropped between 0.7% and 1.3%, in early trade.  

Market participants will be keeping an eye on the release of the US Leading index for August as well as ECB’s current account for further direction. The EUR held support above 1.14 against the USD this morning, hovering around 1.1420.   

EURUSD rallies above 1.1400

EURUSD Curncy (EUR-USD X-RATE)   2015-09-18 08-58-31 

Events for today:

0900

EZ

Jul

ECB Current Account

1500

US

Aug

Leading Index

 

All times UK Local Time

 

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