Orbex Market Flash
USD Down As Fed Hikes Rates But Lowers 2019 Projections
As was widely expected, the Fed lifted rates for a fourth time at the December FOMC meeting which concluded yesterday. However, as we warned during our special “Trading The FOMC” webinar last night, the Dollar sold off as the Fed gave a less optimistic outlook for the coming year.
The language in the statement was tangibly softer. Where the statement previously read that “the committee expects further gradual increase” in rates, the statement now says “the committee judges that some further gradual increases” in rates will be appropriate. This is a far less decisive comment and endorses the market view that the Fed will be looking to slow the pace of its hikes over 2019.
Most notably, the dot plot forecasts for 2019, which give the median projections for policymaker’s views on where rates will be, were lowered to just two hikes from three previously with the fed funds rate expected to end 2019 at 2.9% now from 3.1% prior.
Fed Monitoring “Global Economic And Financial Developments”
Regarding the economy, the Fed was still upbeat, noting performance as “strong” and the risks to the economy were still described as “roughly balanced.” However, the Fed did say that it will “continue to monitor global economic and financial developments and asses their implications for the economic outlook.”
Essentially, what the Fed is saying here is that there are risk factors both at home and abroad which could delay further hikes. This concern was notable in the GDP forecasts which were revised lower for next year by around 0.25% since the September forecasts.
In all, the meeting was rather muted. The market got the rate hike it was looking for though the accompanying message encourages the view that the Fed will likely be on hold for a while as it monitors the development of certain risk factors.
It’s been the same story now for the last three Decembers; the Fed hikes rates and the Dollar sells off.
USD has been sold across the board this morning, and JPY has been one of the main beneficiaries. Looking at the weekly chart, you can see that price has now broken down below the local bullish channel running since Q2 this year. To the downside, the next main support zones are the retest of the broken bearish trend line from 2015 highs and below that the rising trend lien form 2016 lows.