USD Suffers as Fed Leaves Hike for a Later Time

USD

The U.S. Dollar is mostly weaker after markets reacted to the Fed’s decision announcement. As expected, the Fed did not raise rates, but the vote was not unanimous. In fact, three FOMC members voted to tighten monetary policy as they see the economy’s steadiness merits it. Labor markets have improved, inflation is on the rise, and wages have started to move upwards in the last few months.

Nevertheless, the Fed needs to see further gains in manufacturing output and consumer spending. Greenback fell about 1.5%, per the BDXY, since yesterday. Chances of a hike by end of the year are 58.6%.

Initial as well as Continuing Jobless Claims fell and continue to solidify the health of the country’s labor tightening. Purchasing Manufacturer’s Index will be the only data to close out the week tomorrow.

JPY

The Japanese Yen stopped appreciating following the Bank of Japan’s decision to refocus its monetary policy goals yesterday. In an announcement that left many scratching their heads, the BOJ stated that they are going to control the effects of negative interest rates, particularly the yield curve which has narrowed and negatively affected the profitability of Japan’s banking sector.

The BOJ is evaluating the appropriateness of continuing its quantitative easing program and while Governor Haruhiko Kuroda said bond purchases could increase in the future, monetary expansion will not be the priority. Indeed, the bank seems to be accepting that it has done a lot to ease borrowing conditions, but the effects have reached their limits and its success, or lack thereof, has to be questioned.

EUR

The Euro strengthened on the basis of the Fed’s decision to keep policy in place. With European markets recovering and accommodative conditions still untouched, the Euro picked up where it left off earlier this month. Currencies such as Swiss Franc and other Scandinavian ones like Norwegian Krone are enjoying renewed risk-appetite and recovery in commodity prices as well.

The Norwegian Central Bank kept its benchmark rate unchanged at 0.5% and the bank made it clear it will stay at that level for the long-term. Europe needed the boost to market activity after a slump of weeks since end of August.