The long awaited interest increase has finally occurred, the FED increased the Federal Funds Rate to 0.5% from o,25%. The raise was all but priced in across the board, which saw capped gains for the USD, except for the EUR and GBP, which are the only ones who have reacted in a clear directional bias indicating that the ball is now in their court. Commodities came off a little but continue to trade in a range with a slight negative squeeze noticeable. Stocks and indices in the US and China, took the statements as a positive and gained as traders expect an improved economy conducive to profits. The Fed statement and projections, stabilizes markets by reiterating that any further changes will be gradual as the impact of the current raise is gauged, thus stifling any wild speculation to a nearby consecutive raise in rates.
Todays data should see the USD bulls try to leverage last nights data and any upside surprises, in the Philly Fed Manufacturing Index and unemployment claims (expected at 2.1 and 271K respectively), will see the USD squeeze higher. Negative data will see tee pre FOMC prices being tested as traders take profits.
The pound struggled in early trade yesterday as the Average Earning Index and Claimant Count Change disappointed markets, coming out worse than expected. The GBPs woes continued, with the GBP losing more ground to the USD, as the FOMC data confirmed the divergence between the two economies widening. Todays Retail Sales (expected at 0.6%) will be scrutinized for further clues as to the health of the British economy, a worse than expected figure will deepen the GBP`s plunge as bears look to test recent lows. A better than expected number will see bulls regain confidence as they try to keep the GBP afloat.
The EUR traded mostly flat yesterday, losing some ground despite slightly better PMI figures from the Eurozone and its two major components. Even a better than expected Final CPI y/y figure (0.2% vs 0.1%) could not put a dent to the slumping EUR as it barely managed to reach pre PMI prices going into the FOMC. The EUR then lost slight ground against the USD post FOMC, as yet again the divergence between the two economies emerges. Todays big news out of the EU, is the German Ifo Business Climate figure , expected at 109.2, a better than expected number will see EUR bulls try to take back some of yesterdays losses and see the EURUSD test the 1.0900 handle before todays US data.
The JPY weakened against the USD after yesterdays FOMC but managed to hold firm against the EUR and GBP in Asian trade. Traders will have their eye on the Monetary Policy Statement and BOJ Press Conference in tomorrows Asian session. the BOJ has adopted a wait and see strategy in recent statements as it awaited the moves of other central banks. If the BOJ deems yesterdays FOMC tightening as insignificant to their goals they might re-adopt a dovish tone which will see the JPY lose ground across the board as it retests recent months lows. A more hawkish tone out of the BOJ will see the JPY strengthen.