Fed Holds Rates Steady

Daily Analysis - 18/09/2015

FOMC Leaves Benchmark Rate Unchanged at 0.25%

As widely expected, the Federal Reserve left the short term interest rates unchanged citing concerns of the global economic slowdown, lack of inflation and market volatility in a 9 – 1 vote. The Fed however did not rule out a rate hike in any of its next two meetings, in October or December.

Dollar Weakens on Fed Inaction

The US Dollar experienced a broad sell-off across the board as the Federal Reserve opted to stand firm on policy at its meeting's conclusion yesterday. Speaking at the press conference, Fed Chairwoman, Janet Yellen noted that recent global developments had put downward pressure on inflation. She further remarked that the US Dollar appreciation was putting a net drag on the exports sector while maintaining that the effects of lower crude oil prices were still 'transitory'. The Fed however believed that a rate hike this year was imminent. The staff economic projections showed that the Fed funds rate was revised lower by 0.25%, showing that there is a possibility of the Fed funds target range to be between 0.25 - 0.50% by end of 2015. EURUSD rallied by 1.24% yesterday after the FOMC event to close at 1.1428 before easing back lower in today’s early trading session.

SNB Leaves Libor Unchanged

The Swiss National Bank convened for its quarterly monetary policy review yesterday and in a widely expected move, left the key lending rates unchanged at -0.75%. The tone of the SNB was also less dovish than expected. While SNB Governor Thomas Jordan kept to the script of calling the Swiss Franc "significantly overvalued," he did not make any references to the Central Bank's currency interventions. The SNB noted that the inflation outlook was important for signaling when the SNB could rate rates. He said that Swiss economic activity was expected to pickup during the second half of the year but cited headwinds from China's economic developments and noted that the global economic recovery was still fraught with risks. The Swiss Franc initially strengthend into the SNB's meeting and held onto gains after renewed selling pressure post-FOMC. USDCHF closed -1.22% lower during yesterday’s session.

Canada CPI on Tap

The monthly consumer inflation numbers from Canada will be released today at 13:30 GMT and is the only major macroecononmic event during the North American trading session today. Expectations call for the monthly core CPI to have risen 0.20%, up from 0.00% reading last month while headline CPI is expected to stay flat at 0.00%, down from 0.10% last month. The consumer inflation reading is the first key data point since the Bank of Canada left rates unchanged at 0.50% during the last monetary policy meeting a few weeks ago. The Central Bank had noted that inflation remains in line with the BoC's expectations of 2.00% for core annualized CPI. The Canadian dollar was volatile yesterday as USDCAD briefly touched the lows to 1.3075 before easing back to the upside. For the sassion, USDCAD closed in positive territory with modest gains of 0.08%.

Gold Gains on FOMC

Gold futures kept up their rally, posting gains for the second day in a row yesterday after rallying over 1.07% for the day to settle at $1131.5 per troy ounce. For the week, Gold is up near 2.10% after testing the lows of $1102.45 earlier in the week. Crude oil was more or less subdued as the commodity failed to capitalize on the US Dollar’s weakness. Crude oil was down -0.78% for the session although on a weekly basis, crude oil has booked over 4.00% gains to-date, testing the highs of $47.68 per barrel. Silver futures also posted strong gains, up over 1.58% for the session yesterday, having increaed over 3.50% for the week, trading near the $15 handle. The spread between Brent and WTI continues to narrow as the benchmarks see the premium between the two benchmarks close.