Federal Reserve set the stage for rate hikes next year -- far sooner than its developed market peers
Federal Reserve said "a moderation in the pace of asset purchases may soon be warranted"
The Bank of Japan made no policy changes and is not seen lifting rates anytime soon
The Bank of England meets later today, with traders expecting it to keep rates steady
The dollar hit its highest in a month today and pressed the euro towards major support levels, after the Federal Reserve set the stage for rate hikes next year, far sooner than its developed market peers are expected to move.
The U.S central bank left policy settings unchanged overnight and, as expected, did not announce the beginning of asset purchase tapering. But the Federal Reserve said "a moderation in the pace of asset purchases may soon be warranted" and Fed Chair Jerome Powell said board members believed tapering could conclude around mid-2022, opening the way for rate hikes after that. The dollar rose broadly after his comments, especially against the euro and yen.
The U.S yield curve flattened and Fed funds futures markets moved to price a 50% chance of a hike in October and to fully price a 25 basis point rate hike in December. Liquidity was lightened by a holiday in Japan today.
Powell didn't give any specifics about the start of the taper, he said there was broad agreement at the end of the taper, one which 'concludes around the middle of next year.
The yen also lost ground after Powell's news conference and ended up falling 0.5% for the session, its sharpest drop in more than three months, taking it to 109.87 per dollar, about the middle of a range it has kept since March. The Bank of Japan, which met on Wednesday, made no policy changes and is not seen lifting rates anytime soon while the European Central Bank is also lagging the Fed.
Fed members' new projections have hikes starting in 2022. The yen, a safe-haven asset, had also suffered a bit yesterday because developer China Ever Grande offered the market some relief after its main unit said it agreed to settle a bond interest payment with some domestic creditors.
Euro
The single currency fell as the dollar hit its highest in a month today in the Asian session and pressed the euro towards major support levels, after the Federal Reserve set the stage for rate hikes next year, far sooner than its developed market peers are expected to move. The U.S central bank left policy settings unchanged as expected. Overall, the EUR/USD traded with a low of 1.1744 and a high of 1.1777 before closing the day around 1.1750 in the New York session.
Yen
The Japanese Yen broadly fell after the Federal Reserve said "a moderation in the pace of asset purchases may soon be warranted" and Fed Chair Jerome Powell said board members believed tapering could conclude around mid-2022, opening the way for rate hikes after that. Liquidity was lightened by a holiday in Japan on Thursday. Overall, the USD/JPY traded with a low of 109.90 and a high of 110.21 before closing the day around 110.06 in the U.S session.
British Pound
The British Pound fell to a one-month low yesterday as investors pushed back expectations of a rate hike by the Bank of England after a flurry of weak data. For sterling to rally again, BoE needed to layout its timeline for raising rates starting early next year, which seems quite premature. A lot depends on how Britain's labor market will fare. Overall, the GBP/USD traded with a low of 1.3687 and a high of 1.3766 before closing the day at 1.3698 in the New York session.
Canadian Dollar
The Canadian Dollar strengthened to a five-day high yesterday as worries about the potential collapse of property developer China Ever Grande receded, but gains were capped by a hawkish shift in guidance from the Federal Reserve. Worries over a possible default by China's No. 2 property developer have weighed on financial markets in recent days. Overall, USD/CAD traded with a low of 1.2582 and a high of 1.2693 before closing the day at 1.2683 in the New York session.
Australian Dollar
The Australian Dollar was on the defensive today in the Asian session after the Federal Reserve offered a relatively hawkish outlook on U.S rate increases, and as investors wait anxiously for news on the China Ever Grande saga. The property developer is due to pay interest on one of its dollar bonds today, and default might trigger another round of global risk aversion. Overall, AUD/USD traded with a low of 0.7272 and a high of 0.7344 before closing the day at 0.7389 in the New York session.
Euro-Yen
EUR/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 39 and lies below the neutral zone. In general, the pair has lost 0.11%.
Sterling-Yen
Currently, GBP/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 45 reading and lies below the neutral zone. On the whole, the pair has lost 0.43%.
Aussie-Yen
Currently, the cross is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 42 reading and lies below the neutral region. In general, the pair has lost 0.49%.
Euro-Sterling
This cross is currently trading below 14, 50 and 100 days moving average. Fast stochastic is indicating a bearish tone and MACD is issuing a bullish signal. The Relative Strength Index is above 40 and lies below the neutral region. Overall, the pair has gained 0.32%.
Sterling-Swiss
This cross is trading above 14 and below 50, 100 days moving average. Fast stochastic is issuing a bullish stance and MACD is also indicating a bullish tone. The Relative Strength Index is above 62 and lies below the neutral region. In general, the pair has lost 0.01%.
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