On Thursday the Federal Bank of America opted to leave rates unchanged with rates remaining at 1.25%. The move which was expected by markets saw Dollar FX rates fall against a basket of currencies including the Japanese Yen, Australian Dollar, Pound and Euro.
Although many felt that Janet Yellen was extremely unlikely to shake things up before her departure the decision followed some fairly compelling US Data. These readings included an overestimate US Consumer Confidence and ADP Non-Farm Employment change.
The reasoning behind US interest rates remaining at 1.25%
As the Federal Reserve Bank was gearing up to announce Janet Yellen’s successor, it would have been unlikely that the Current FED chair would have caught markets off guard as investors await Decembers Interest Hike.
Jerome H. Powell, who has served on the FED board of governors since 2012, received the nod of approval from President Trump will officially take over as chair of the Federal Reserve Bank in February.
December US interest rate rise a certainty?
Although markets may have labelled Wednesdays FOMC decision as a non-event Yellen revealed a number of hints which indicate a December interest rate.
The hike is likely.
US labour market
The US labour Market has continued to strengthen despite the devastation left in wake of simultaneous hurricanes which subdued the jobs market and economic activity. The unemployment rate has also continued to decline.
Household spending and business investment have continued to improve over the last few quarters. The FED underlined its aim to achieve maximum employment and crucially price stability. The FED also reiterated that the devastation caused by the recent hurricanes would not hamper economic growth going forward.
US inflation has remained below par, with the FED’s ideal being 2%. Inflation achieving a +1.7% annualised increase with only fuel prices rising, which has been interpreted as another consequence of the hurricanes which battered Houston. Household spending has grown moderately so the FED still believes their target is feasible in the medium term.
Dollar FX rates fluctuated following the announcement
After the Federal Reserve Bank announced that rates would indeed remain on hold in November. The announcement saw the Dollar weaken against the Euro and EUR/USD gain from 1.1615 to 1.1661.
The Dollar also suffered against the AUD with the Dollar FX rates depreciating around 0.42% against the Australian Dollar following the rate announcement.
The FED’s announcement saw AUD/USD move from 0.7676 to 0.7717 in the following trading window. Markets have seen many currency pairs correct.