January FOMC Statement comes off as dovish

Jan 28, 8:05 am
Fed reserve recision

The January FOMC meeting sent a message to the markets that the Federal Reserve was closely monitoring the global economic developments. Leaving the base rates unchanged in the 0.25% – 0.50% band with a unanimous vote, the Fed’s statement had some phrases which saw the market participants interpret it as being dovish.

For starters, the Fed’s statement noted that economic conditions are likely to evolve which warrants “only gradual increases” in the fed funds rate while noting that economic activity is expected to expand at a moderate pace.

The Fed remained optimistic on the US labour markets noting further strengthening and decline of slack. Interestingly, though, the Fed maintained that the decline in Oil prices as ‘transitory‘ a theme which the Central Bank has stuck to since mid last year despite a continued decline in global Crude Oil prices.

Most noticeable, the Fed removed the statement “risks to the outlook are balanced” which was one of the major themes the market took off from the statement. While March rate hikes are still on the table, it will be the economic data that is likely to dictate the terms, with at least two labour market reports due as well getting to see the revised Q4 GDP numbers and inflation data. By March’s Fed meeting, the markets will have a clear picture of how the US economy has fared during the months of January and February which will mark the first two months after the Fed hiked rates in December of 2015.

Reacting to the news, EURUSD did not see much volatility as the currency pair remained flat. The Euro closed yesterday with modest gains posting a three-day winning streak. EURUSD is currently trading at 1.0876 at the time of writing, with a test to 1.0837 very likely.

Gold prices retreat after touching a one-month high
XAUUSD (1117.96): Gold prices retreat after touching a one-month high

Post the FOMC statement, the markets were volatile as expected, but Gold prices continued to post steady gains late into the night touching a one-month high of 1127.95 before easing back strongly. Gold prices are currently down -0.58% for the day, trading at $1117.90 an ounce. The US S&P500 Index fell back to the 1880 range before showing signs of stabilizing. The S&P500 futures are currently up 0.42% for the day at the time of writing, trading at 1892.

The Asian markets woke up this morning to the FOMC statement as the Nikkei 225 and the Shanghai Composite both closed lower.

RBNZ maintains 2.50% cash rate, but signals further easing if necessary

Following the FOMC statement, the Reserve Bank of New Zealand released their monetary policy report. Keeping the overnight cash rate unchanged at 2.50%, the RBNZ came off dovish noting that “further easing may be required in the coming year and that further declines in the NZD was appropriate“. The Central Bank, however, remained optimistic on inflation but said that it might take longer to reach the target inflation rate. The NZDUSD fell on the RBNZ’s statement to post a low of 0.641 yesterday before pulling back to currently trade at 0.645.

NZDUSD (0.645): Prices pullback from a 4-day low
NZDUSD (0.645): Prices pullback from a 4-day low

Later today, the markets look to the US durable goods orders data ahead of tomorrow’s first release of the fourth quarter GDP while the Bank of Japan will take center stage tomorrow.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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