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Fed rate hike not enough to make the Dollar great again

Fed rate hike not enough to make the Dollar great again

USD
US retail sales data was in line with expectations at 0.1% growth for February. Consumer prices rose 0.1% with the headline rate printing at a five-year high of 2.7%. The core consumer prices rate declined slightly to 2.2% from 2.3% previously.

Last night, the Fed announced a widely expected interest rate hike of 0.25%, bringing the rate to 0.75%. There was no change to projections of two further rate increases in 2017. The key phrase from Fed Chair Yellen was “[the rate hike] does not represent a reassessment of economic outlook or of the appropriate course for monetary policy”. Yellen also emphasised that 2% inflation was a target not a ceiling and that the rate could rise above the threshold at times.

The markets had anticipated a more hawkish stance in the statement and rate projections, especially after Fed members’ recent rhetoric leading up to the meeting. Following Yellen’s comments, the Dollar weakened sharply against the Pound, falling from 1.2200 to 1.2300.

EUR

Dutch election results confirmed that Prime Minister Rutte’s VVD and other pro-European parties would take precedence over Geert Wilders’ Freedom Party. The defeat of the right-wing populist movement had some impact in curbing concerns surrounding the forthcoming French election and the Euro held above 1.0700 this morning.

GBP

UK unemployment has fallen to 4.7% in the three months to January, the lowest figure for over 11 years. There was also a further decline in jobless claims in February. The average earnings data disappointed with a decline in annual growth to 2.2% from 2.6% which dampened expectations of higher inflation pressure. Sterling drifted lower after the UK data, but consolidated near 1.2200 against the Dollar before recovering after the Fed statement.

No change in UK interest rates is expected today, although the statement will still be under close scrutiny given the possibility of a change in forward guidance and hints over future policy trends.

CNY

The Yuan strengthened this morning as the Dollar weakened across the board after the U.S monetary policy statement. The People’s Bank of China set its official Yuan midpoint at 6.8862 per US Dollar prior to the market open on Wednesday. This was 0.37% firmer than the previous fixing and the biggest percentage rise in nearly two months.

Data to watch: 10am Euro Consumer Price Index, Core CPI. 12pm UK BoE Interest Rate Decision, Asset Purchase Facility, Monetary Policy Summary & Voting. 12.30 US Housing Starts, Initial Jobless Claims & Philadelphia Fed Manufacturing.

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