Sterling was under renewed pressure against the Dollar during late trading on Wednesday as sellers exploited the hawkish FOMC meeting to send the GBP/USD to fresh two-week lows at 1.2507. The ongoing Brexit uncertainty this quarter has made it increasingly difficult for sterling to maintain gains while dollar’s explosive rebound from the rising prospects of further U.S. rate hikes in 2017 could expose the GBP/USD to steeper losses.
The U.S. based indices closed lower this afternoon on the heels of the FOMC rate hike of 25 basis points. Asian stocks closed mixed in the overnight session as equities in Europe were lower this morning. As the FOMC’s decision to raise rates resonated in the markets, traders saw the strength in the U.S. dollar continue to multi-year highs.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1/2 to 3/4%. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2% inflation.
The market is demanding a rate rise and the Fed better deliver it today, for if it doesn’t the bank’s credibly will be severely damaged. There is really no excuse not to do so. For the euro/U.S. dollar (EUR/USD) currency pair, a hawkish Fed hike could mean the breakdown of the 1.05 handle at the umpteenth time of asking.
The International Energy Agency agrees with my assessment that the historic OPEC/non-OPEC agreement will put us into a supply deficit early next year and will start to work off the global oil glut. We are on the road to rising demand and lower global production and so, ultimately higher oil prices.
The dollar dipped against the euro and a basket of currencies on Monday, an oil-driven rise in inflation expectations not enough to push on its broader rally as traders worried about the outcome of Wednesday's Federal Reserve policy meeting.
Republican lawmakers and the Federal Reserve may be ready to strike a compromise deal on legislation that would give Congress greater scrutiny over the central bank, now that there is no longer the threat of a presidential veto, but it would likely stop short of dictating rules on setting interest rates.
The Federal Reserve inaugurates the Trump era this week with a near-certain interest rate increase and new economic forecasts providing a first glimpse into whether the U.S. election has reshaped the central bank's growth and inflation outlook.