As expected, Fed policymakers decided to stay put for now but shared enough optimistic views to fuel December hike expectations. The dollar steadied after a mixed start, also taking advantage of risk-off flows stemming from potentially higher borrowing costs.
On the flip side, the euro found itself on weaker footing, partly on dollar strength and also on downbeat economic forecasts released by the EU in the previous session. It didn’t help that Draghi signaled willingness to change their forward guidance if actual data does disappoint.
- Canadian housing starts up from 190K to 206K vs. 199K forecast
- U.S. initial jobless claims at 214K as expected, 215K previous
- Canada pushes back against changes on final text of trade deal
- Fed kept rates on hold at <2.25% as expected
- FOMC: Labor market continued to strengthen, economic activity rising at a strong rate
- FOMC: Risks to outlook remain roughly balanced
- ECB head Draghi: Broad-based expansion in euro zone economy to continue
- Draghi: Can change forward guidance if outlook worsens
- ECB official Nowotny: Italy is a risk since yields widened massively
All eyes and ears were on the Fed rate decision, even as everyone and his momma expected policymakers to sit on their hands this month. True enough, the FOMC announced its decision to keep rates on hold at <2.25%.
What got dollar bulls excited was how the central bank maintained its upbeat assessment of the economy, citing:
“[T]he labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined.”
The November statement also indicated that household spending has strengthened but warned that business investment has slowed. Still, the Fed reiterated that further gradual increases in interest rates are consistent with the current pace of economic developments, adding that risks to their outlook remain roughly balanced.
More on Brexit
According to a report on The Times, the EU would insist on a customs border in the Irish Sea in the event of a “no deal” Brexit situation based on a leaked letter from PM May.
The report mentioned that this would be a “backstop to the backstop” as it would leave Northern Ireland tied to the single market in case U.K. and EU negotiators are unable to hammer out a deal before the deadline.
The same publication also reported that No. 10 is pushing for a draft agreement to be ready by Monday, just a day ahead of a special of summit of EU leaders wherein they could hopefully sign off on the deal. The timeline would involve Raab meeting with his counterpart Barnier on Tuesday, prior to May’s statement in Parliament on Wednesday.
From there, the EU Brexit Summit could be held on November 23 to 25 so mark your calendars, fellas!
Some risk-off moves
The prospect of even higher borrowing costs before the end of the year dampened the mood in Wall Street, leading some indices to close in the red:
- S&P 500 index is down 7.06 points to 2,806.83 (-0.25%)
- Nasdaq is down 39.87 points to 7,530.89 (-0.53%)
- Dow 30 index is up 10.92 points to 26,191.22 (+0.04%)
Crude oil carried on with its slump on oversupply concerns, as well as a WSJ report indicating that Saudi Arabia’s top government-funded think-tank is looking into the possible impact of an OPEC breakup. Gold was able to benefit from safe-haven demand.
- WTI crude oil fell $1.09 to $60.59 per barrel
- Gold slipped $4.60 to $1,224.07 per troy ounce
Major Market Mover(s):
The Greenback finally found its legs and was able to advance across the board when the Fed made its announcement and kept a mostly optimistic outlook.
USD/JPY busted out of its consolidation to a high of 114.09; USD/CHF climbed to 1.0071; GBP/USD retreated to a low of 1.3045; USD/CAD is up to 1.3184, and AUD/USD is down to .7247.
The shared currency was down in the dumps, possibly still reeling from downbeat EU forecasts and remarks from Draghi suggesting that they could adjust their forward guidance if the outlook changes. Dollar strength likely contributed to euro weakness, too.
EUR/USD slumped to a low of 1.1356; EUR/JPY retreated to 129.58; EUR/GBP fell from .8724 to .8699; EUR/AUD dropped to 1.5638, and EUR/NZD is down to 1.6819.
Watch Out For:
- 12:30 am GMT: RBA monetary policy statement
- 1:30 am GMT: Chinese CPI y/y (no change from 2.5% expected)
- 1:30 am GMT: Chinese PPI y/y (dip from 3.6% to 3.3% eyed)