Are you hawkish or dovish on interest rate policy? Okay then, put your hands up if you’re not sure

January 31, 2019

The latest Fed Reserve meeting caused a rally in indices, while the USD weakened.

The EURUSD opened the session at $1.14312 and remained rather steady for most of the session, before dipping to a low of $1.14049. As the Fed Reserve wrapped up their meeting, the USD fell, sending the euro much higher. The pair went from $1.14159 to a high of $1.15011 in the space of an hour. The euro is not far off that high, currently trading at $1.14918. The GBPUSD started the day at $1.30653 and climbed to $1.31213 mid-session before falling to lows of $1.30525 in the lead up to the Fed meeting. The pound then rallied from $1.30605 to a high of $1.31445 as the meeting wrapped up. It is currently trading at $1.31222.

The Dow went off to the races overnight as it welcomed the news of lower interest rate for longer. The index opened at 24,676.38 and slid to an early low of 24,576.27. The Dow then climbed for most of the session after that as it peaked at 25,102.59 after the Fed meeting finished. It has come off those highs today and is currently trading at 24,993.20. The Dax looked set for another disappointing session until the Dow dragged it up into positive territory. The German index opened at 11,209.47 and declined for the first half of the session, hitting a low of 11,130.81. The Dax rallied late to peak at 11,234.31 before closing at 11,212.31.

The Fed Reserve has indicated that they see a slower and more gradual rise in interest rates, which was good news for indices as money is cheaper to borrow. Although, this language is in stark contrast to the language it was using several months ago when they signalled a more aggressive path to rate normalisation. It seems that a less aggressive path brings less volatility but it means that more and more money is being borrowed at rates that aren’t sustainable and will need to be paid back at some stage (when rates will be higher, putting some businesses under financial stress).

Data released today includes:

Japan – Housing Starts

UK – Nationwide HPI

China – Manufacturing and Non-Manufacturing PMIs

Canada – GDP, RMPI, IPPI, BoC Governing Council Member Carolyn Williams speaks

US – Challenger Job Cuts, Employment Cost Index, Unemployment Claims, Chicago PMI, New Home Sales, Natural Gas Storage

Europe – European Prelim Flash GDP, Italian Prelim GDP, Spanish Flash GDP, German Retail Sales, French Prelim CPI, Spanish Flash CPI, European Unemployment Rate, German Unemployment Change, Italian Monthly Unemployment Change, German Buba President Jens Weidmann speaks


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