Home Fed takes a breather

Markets off to yet another shaky start this morning following yesterday’s FOMC meeting. More analysis below, but as the Fed decides to stop for a bit to take a look around these markets and listen to what’s being said, risk is being sold across the board on renewed fears over uncertainty. A bit more news of uncertainty as Bank of Japan Japanese Economy Minister Akira Amari announced he would be stepping down amid rumors he accepted bribes from a construction company. This coincided with a slide in equities and other risky assets, which sent the yen higher along with other safe haven assets. A fairly quiet data calendar allowed the broad market to consume the Fed’s decision and maintain a keen eye on equity performance. All that being said, FX markets maintained a steady trade but GBP/USD slipped a touch on new “Brexit” rumors.

Sterling has been fighting the good fight of late. After months of heavy selling, Cable mounted a brief comeback over the last week, bouncing about 1% off recent lows. Overnight, Sterling slid a touch lower as new rumors circulated that EU-UK negotiations have stalled a bit as PM Cameron makes another attempt to the EU’s Juncker to save his EU renegotiation. Furthermore, markets were bracing for less than stellar Q4 UK GDP which did not surprise, coming in at less than stellar +0.5%. The euro touched its highest level in one week, tossing aside some second tier data results. The single currency has bounced a bit post-Fed, finding some relief as more dollar bulls shed long positions. The EUR/USD rate has remained fixed to a very tight range this week and yesterday’s decision should not help investors looking to pick direction.

As previously indicated, the FOMC decided to keep rates unchanged at the most recent policy meeting. There was no press conference at this meeting but the accompanying statement was closely scrutinized, as we all expected. Concerning the statement there were four or five key takeaways. One, and most importantly, the Fed was unanimous in its decision to keep rates at current levels while offering a very cautious outlook on growth, both inside and outside the US. This pause in raising rates can be directly attributed to the Fed’s worries over recent volatility in global equities and lower expectations on inflation. Concerning inflation, the Fed removed important language from its previous statement that it was “reasonably confident” prices would rise back to their 2% target. Overall, a very cagey response from Yellen and company, but no doubt dovish and more cautious.

On the data front today, jobless claims, durable goods and pending home sales pace what should be a very active slate. Durable goods should garner the most attention, as Wall Street anticipates no change over the previous month with a slight decline for those orders excluding defense and transportation. The greenback has been very steady of late, losing ground to commodity currencies while holding strong against currencies such as the euro and pound. The Canadian dollar, which has recovered nicely over the last week, trailed off a bit following the Fed’s release. With little data on the docket this week, the Loonie remains pinned to oil and equities. Oil’s strong bounce has finally given the CAD$ the strength many had desired but with little fundamental change to the broad market, we should wonder how long this dead cat bounce can persist. December PPI closes out the data calendar tomorrow morning, it is expected that prices declined a touch although no impact should be felt in the FX world.

Further reading:

Beware of brokers offering high-leverage gifts – even if you don’t use high leverage

Four FOMC reactions