Fed keeps rates unchanged

In a note on Wednesday, Citi’s Steve Englander said that if these upcoming jobs reports show nonfarm payrolls grow by at least 210,000 – with the unemployment rate correspondingly dropping further – the Fed will likely have reason to raise rates. Fed policymakers said they felt the economy had overcome a first-quarter slowdown and was expanding moderately, with “solid job gains” in recent months.

With no meeting scheduled in August, the Fed will have two months of data to analyse before deciding whether to hike rates for the first time since 2006.

Global gold demand shrank to its lowest since 2009 in the second quarter as China poured funds into its now troubled equities market, according to a report by GFMS, a division of Thomson Reuters.

“But they’ve nudged the market in the direction of a 2015 rate hike”.

The Dow Jones Industrial Average jumped about 40 points immediately after the release of the statement at the conclusion of the Fed’s two-day meeting.

Much of the rate hike discussion will depend on upcoming economic indicators from the United States, which will provide a better picture of whether or not the economy is strong enough to withstand a rate hike in September.

The Canadian dollar was down 0.5 percent at $1.3005, and Australian dollar dipped 0.1 percent at $0.7291.

With the stronger dollar and the likelihood of a rate hike by the end of the year, “there’s no need for any kind of safety whatsoever”, said Phillip Streible, senior commodities broker for RJO Futures in Chicago. Investors have been encouraged by the prospect of tightening monetary policy in the US and as a result the dollar has gained almost 9% against its major peers year-to-date and has experienced significant gains against most emerging market currencies.

The bond market seemed to agree with the idea that the Fed was in no rush to raise rates.

Inflation was mentioned 12 times in the Fed’s latest statement. “The market will continue to search for more hints on whether it will come in September or later”, said Shin Kadota, chief FX strategist at Barclays in Tokyo.

ENERGY: Benchmark U.S. crude rose 81 cents to close at $48.79 a barrel on the New York Mercantile Exchange. In the FOMC’s statement following the meeting the FOMC reported it would again keep the federal funds rate unchanged.

On the inflation front, the Fed got reasonably encouraging news on Thursday as the first estimate of second quarter GDP showed “core” PCE, a measure of inflation that strips out the more volatile cost of food and gas, rose 1.8% in the second quarter.

Elsewhere in currency markets, the euro was around 0.2% lower against the dollar at $1.096 in early European trade. The New Zealand dollar fell 1 per cent to US$0.6590.