March 15th 2017 – The United States Federal Reserve (Fed) raised borrowing costs for the third time since the end of the financial crisis. An event so widely predicted that Bloomberg’s World Interest Rate Probability was pegged at close to 100%. The Federal Open Market Committee (FOMC) decided to increase the federal funds rate by 25 basis points to a target range of 0.75-1.00%.
During the announcement, FOMC cited continued progress towards achieving maximum employment and inflation of 2% for raising rates. Jobs gains have been “solid” and household spending continues to grow “moderately.” They are predicting increasing rates a total of three times this year. President Trump has been vehemently against a strong dollar; we may see more of him pressing for a weaker dollar as he believes this will increase exports.
Below are the dates of the remaining FOMC meetings this year.
May 3nd — June 14th — July 26th — September 20th — November 1st — December 13th
We have seen a steady decline in the value of the Euro over the last several years, culminating in a 10 year low the first days of 2017. The weeks leading up to the official announcement experienced a small slump. Once the announcement was made and the outcome was as expected we didn’t see much of an impact. Rather, the Euro strengthened on the results of the closely watched Dutch elections. The Populist Anti-EU Party of Freedom fared less well than polls had predicted. All eyes are on the French Elections starting next month.
In the weeks leading to the announcement we saw the dollar pricing in the expected outcome of the Fed. Since the announcement increased bets that the Bank of England will start tightening policy as early as next year has seen Sterling slowly rising. In the coming months, lingering Brexit and political uncertainty across Europe will keep Sterling saved on our Watchlists.
The Yen has recovered substantially from the Summer 2016 lows. The weeks leading to the March 15th announcement we saw the Japanese Yen stumbling to the lowest level since January 20th. There has been a gradual recovery since. It will be interesting to see the if the BOJ’s bonds (JGBs) purchase plan will have a lasting impact on the Yen.
The Canadian dollar has recovered significantly since the USD/CAD reaching a 13 year high in January 2016. Pre-announcement we saw a three-month low in Canadian dollar value. The Loonie has experienced a small bounce back since. Looking further, the price action in Oil is expected to play a considerable part for the sixth largest oil exporter.
The S&P500 continues it’s astronomic rise. The buildup to the FOMC meeting saw the index grow to records heights. For how long will the bulls last with continued whispers of an imminent correction or will we see 2500 this year?
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