The Fed kept interest rates on hold as expected but the dollar still tossed and turned as policy expectations seemed to shift. Meanwhile, the euro ended in the weakest spot, possibly due to Brexit concerns.
- ADP non-farm employment down from 228K to 204K vs. 200K consensus
- FOMC kept interest rates on hold at <1.75% as expected
- FOMC: Economy growing at a moderate pace, job gains strong
- FOMC: “Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term”
- FOMC omitted line on monitoring inflation developments closely
- U.S. EIA crude oil inventories rose by 6.2M barrels vs. 1.0M forecast
Mixed ADP report
The only major report released from the U.S. was the ADP non-farm employment change, which came in slightly better than expected at 204K versus the estimated 200K figure.
Most sectors reported gains in hiring, except for the information service providing industry. However, this was lower than the earlier reading of 228K, which was already downgraded from the initially reported 241K increase.
Analysts remarked that tightening labor conditions are making it more difficult for employers to find skilled talent as hiring in high-skilled professional and business services industry accounted for more than half of all jobs added in the month.
FOMC stands pat
As everyone and their momma expected, the FOMC kept rates on hold at <1.75% in this month’s rate statement while keeping the door open for further tightening later on.
As in their previous statements, the central bank noted that the economy is expanding at a moderate pace and that job gains have been strong. It also mentioned that household spending moderated from the previous quarter and that risks remain roughly balanced.
Market watchers took notice of the fact that the Fed omitted some lines on how policymakers are watching inflation developments closely and how the economic outlook has strengthened in recent months. From previously saying that “inflation on a 12-month basis is expected to move up in coming months,” it revised its spiel to say:
“Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term.”
Many interpreted this to mean that the Fed is willing to let inflation run past its 2% target without tightening too aggressively while the removal of the line on improving economic outlook brought some bears to the yard.
Major Market Mover(s):
EUR & GBP
The shared currency was the weakest performer for the day even though there were no apparent catalysts for the slide.
Sterling also chalked up its fair share of losses, so it’s possible that the drop was spurred by Brexit jitters. Word through the grapevine is that the U.K. cabinet might reject the proposed customs agreement with the EU, which could be bad news for both the Brits and the euro zone.
EUR/USD is down 42 pips to 1.1950 (-0.35%), EUR/JPY is down to 131.30 (-0.36%), EUR/AUD slipped to 1.5951 (-0.31%).
GBP/USD is down to 1.3572 (-0.28%), GBP/AUD fell to 1.8109 (-0.32%), GBP/CAD tumbled to 1.7472 (-0.03%), and GBP/JPY is down to 149.07.
The scrilla had a volatile reaction to the FOMC decision as it tumbled on some changes in rhetoric but soon recovered as the policy bias remained more or less the same.
USD/CAD fell to 1.2810 then recovered to 1.2886, EUR/USD bounced to 1.2025 then retreated to 1.1944, and GBP/USD is down to 1.3535.
Watch Out For:
- 11:30 pm GMT Australia AIG services index
- Japanese banks closed for the holiday
- 2:00 am GMT: New Zealand ANZ commodity prices (1.2% previous)
- 2:30 am GMT: Australia trade balance (0.68B AUD surplus expected)
- 2:30 am GMT: Australia building approvals (1.1% rebound over earlier 6.2% drop expected)