Markets buoyed as Fed rate rise moves closer

“However, in light of the heightened uncertainties aboard and a slightly softer expected path for inflation, the Committee judged it appropriate to wait for more evidence, including a few further improvement in the labor market, to bolster its confidence that inflation will rise to 2 present in the medium term”.

Indeed even if the Fed flip-flops again and turns more dovish between now and December, the European Central Bank is providing a solid underpinning to the divergence trade through its QE programme. However post meeting commodities corrected and today gold is trading around $1160 per ounce while base metals are down between 1-2%. “A policy move is really, really unlikely and I wouldn’t hold out much hope of a shift in the policy statement to encourage pricing of a December hike, by say, removing the reference to global developments in then assessments of risks”. “The bond market has doubted the Fed for years and years”, said John Canally, market strategist and economist at LPL Financial. GBP fell the least among major currencies with the Bank of England still widely expected to raise interest rates in early 2016.

Knowing that they were not going to raise rates today, the Fed did the right thing by leaving themselves plenty of flexibility to either punt again in December or FINALLY hike if the data nudges them in that direction.

The Bank of Japan rate decision will be a tough call and the risk is to the upside for USD/JPY because we do not expect a big reaction to steady policy.

“Can Fed dovishness calm global markets and stop the dollar’s advance?” Easing on the other hand would be very positive for USD/JPY. In Australia, the quarterly CPI was a disappointment at 0.5% versus the projected 0.7% figure. The differential between the RBA and the Fed is also returning to the baseline theory.

Instead of simply responding to volatility in the stock market – which is already a controversial measure for a central bank to look at – why is it causing volatility through its closed-door ways?

USD/CAD collapsed today on the back of soaring oil prices. I’m not sure. Oil prices are one worry, and the precipitous fall in Bund yields another. There were no reports out of Switzerland yesterday and none are lined up today, which means that franc traders might pay closer attention to euro zone data.

Gold was trading above $1,170 on Wednesday morning in London in the lead-up to tonight’s Federal Open Market Committee’s statement. Canadian GDP numbers are scheduled for release Friday and chances are the data will be weak, limiting the decline in USD/CAD. Figures on U.S.jobs, retail sales, manufacturing, inventories and exports all disappointed, while new jobless claims and housing data – for the most part – have showed continued strength.