Spotlight on Today’s US Fed Rate Decision
The US Federal Reserve (Fed) will later today raise interest rates for the first time since 2006, as strongly signalled by policymakers, including Fed Chairwoman Janet Yellen. After the meeting, market attention will quickly shift towards when the next rate increase is due. The Euro and Sterling could move south against the US Dollar after the expected policy shift is announced today.
Ahead of today’s historical Fed decision, markets just now received another snapshot of the UK economy with the release of latest wages data showing a further slowdown in earnings growth for the three months ended October. In the Euro zone, a survey earlier today indicated that manufacturing activity jumped to a 20-month high in December, but services sector underperformed expectations.
Pound Sterling – UK Markets
Amid tonight’s Fed interest rate decision announcement dominating trader focus, the Pound – US Dollar currency pair currently continues to trade below the 1.51 mark, close to yesterday’s lows. The broad based strength in the US Dollar has also limited the potential gains for Sterling from an unexpected drop in unemployment rate. The official UK job numbers that was published just now revealed that the jobless rate took a surprise dive to record its lowest level since May 2008 and employment jumped to a record as the labour market continued to strengthen.
However, the Britain’s job market also delivered some disappointing news after the pace of wage growth eased more than expected for the three months until October. The dismal earnings data is likely to push further expectations of a rate rise by the Bank of England. The UK central bank Governor Mark Carney and the majority of the other members of the monetary policy committee have repeatedly expressed the central bank’s desire to see faster wage growth and stronger domestic cost pressures before beginning to tighten policy.
US Dollar – US Markets
This morning, the US Dollar is range bound against the Euro with the stage set for a big move as the Fed will announce its widely awaited interest rate verdict later today. The US central bank, which late last year had ended its asset purchase programme is anticipated to raise short-term interest rates today, from zero to a quarter point increase, for the first time since 2006 amid a strengthening US labour market and economy. The Federal Open Market Committee’s (FOMC) monetary policy statement will also accompany a new set of economic projections, following which the Fed Chairperson Janet Yellen is expected to talk about the pace of further rate rises. Today’s key event will decide the fate for macro in the US and perhaps for nations across the world.
Just before the Fed’s momentous announcement, the US economic docket will offer three key updates in the form of data on housing starts, industrial production and flash December PMI estimate for the nation’s manufacturing activity. However, these economic indicators will hardly have any influence on trading in the greenback against the majors.
Euro – European Markets
The shared currency had an uninspired rally earlier today against its major currency counterparts including the US Dollar, though the pace of the movement was lackluster, ahead of a symbolic interest rate decision by the Fed scheduled later today. Investors appear to be waiting on the sidelines as the policy meeting today is expected to announce an increase in US interest rates for the first time in almost a decade, which could weigh on trading in the Euro against the greenback.
Also, currency traders seem to have shrugged off better than expected December preliminary manufacturing activity data in the Euro zone and its two largest economies that was released earlier today, to keep the pair below the 1.10 mark. There was also some disappointing news, as both German and French business activity eased in December, dampening optimism over their economic health. In a short while, Euro zone’s final inflation print for November will be received, however it is unlikely to influence currency movement as the Fed decision is on the horizon which could send waves through the markets.
Other Currencies – Highlights
The Kiwi Dollar has currently nudged lower against the greenback, as investors focus turns to the all important Fed’s monetary policy outcome due later today. The US central bank will conclude its two-day policy meeting today and expectations are rife for the Fed to raise the benchmark index by 0.25% and to be followed by more rate rises in 2016. Higher interest rates could make the US Dollar more appealing, but a surprise narrative by the Fed in its policy statement could limit losses in the New Zealand – US Dollar currency pair.
Following the US central bank’s interest rate announcement, traders will eye New Zealand’s third quarter growth data which is scheduled immediately after the Fed verdict. The quarterly report is expected to show a strong bounce back in New Zealand’s economic growth activity for the three months ended September. However, the Reserve Bank of New Zealand, in cutting the official cash rate to 2.50% had stated that strong El Nino conditions this summer will hurt economic growth. At the same time, the expected growth rate is still subdued when compared with growth in 2014.