Article Highlights

  • Fed hikes interest rates from 0.25% to 0.50% as expected
  • Fed head Yellen expressed confidence in U.S. economic prospects
  • FOMC upgraded growth forecast for 2016, downgraded inflation estimate
  • U.S. crude oil inventories increased by 4.8 million barrels
  • U.S. building permits and housing starts data beat expectations
  • U.S. industrial production down by 0.6% vs. 0.0% forecast
  • U.S. flash manu PMI down from 52.8 to 51.3 vs. 52.7 forecast
  • Canadian foreign securities purchases up to 22.1 billion CAD
  • New Zealand economy expanded by 0.9% in Q3, 0.4% previous
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This one’s for the books, forex fellas! The Fed officially became the first major central bank to raise rates after the financial recession, spurring volatility among dollar pairs.

Major Events:

FOMC statement – It looks like FOMC policymakers are feeling extra generous this time of the year, as they shared hawkish vibes during their interest rate statement. Aside from hiking interest rates from 0.25% to 0.50% as expected, Fed officials also decided to upgrade their growth forecast for 2016 from 2.3% to 2.4% and lower their unemployment rate estimate from 4.8% to 4.7%. However, they lowered both their PCE inflation forecast and the core version of the reading from 1.7% to 1.6% possibly to account for the recent commodity slump.

Fed head Yellen also sounded cheerier than usual in her press conference, as she stressed the importance of starting to tighten gradually instead of abruptly. She expressed confidence in the U.S. economic outlook, allowing U.S. equities to rally as well.

Mixed U.S. data – Prior to the FOMC statement, the Uncle Sam was already pretty busy printing out one economic report after another. The results came in mixed, with building permits and housing starts beating expectations and the industrial production and capacity utilization figures falling short. The flash manufacturing PMI was also subpar, as the reading fell from 52.8 to 51.3 to indicate a slower pace of industry expansion.

Jump in crude oil supply – Just when it seemed like oil prices were bouncing back, the U.S. crude oil inventories report indicated an increase of 4.8 million barrels in its stockpiles, reviving fears of an oversupply. Analysts had been expecting to see a drop of 0.3 million barrels, following the previous week’s decline of 3.6 million barrels.

Major Currency Movers:

USD – It took quite a while before the Greenback was able to make up its mind where to go after the FOMC statement, as forex traders were probably trying to play it safe in case Yellen ruins the hawkish mood.

EUR/USD broke below support at the 1.0900 handle and is down 35 pips to 1.0873 (-0.32%), GBP/USD dipped to an intraday low of 1.4958 and is down 26 pips (-0.17%), USD/JPY tossed and turned but eventually made an upside break past 122.00 (+0.20%), and USD/CHF is testing the top of its short-term range at .9927 (+0.31%).

CAD – The Loonie dropped to fresh forex lows against the Greenback and resumed its slide against its other counterparts upon seeing the rise in crude oil stockpiles.

USD/CAD popped up to an intraday high of 1.3845 and is back down to 1.3800 (+0.11%), CAD/JPY tumbled to the 88.00 mark which held as support (+0.12%), EUR/CAD is still moving sideways around 1.5000 (-0.01%), and GBP/CAD jumped a few pips shy of the 2.0800 handle (-0.06%).

Watch Out For:

  • 12:50 am GMT: Japanese trade balance (-0.21T JPY expected, -0.20T JPY previous)

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