16 Dec 2015

Markets soar as Federal Reserve hikes rates for first time since 2006

United States Dollar: Yesterday evening saw the first interest rate hike from the US Federal in over nine years with the benchmark funding rate being raised from >0.25% to >0.5%. The move was widely expected from the financial markets and well received too. The Feds last rate decision and press conference in September was pretty shambolic as the no-move and downbeat comments about the Chinese economy saw markets plunge around the world. This time around with traders factoring in around a 80% chance of a hike all US stock markets soared in the hour after the decision with the Dow Jones ending up over 200 points higher. As I write equity markets around the world are all higher with the FTSE up around 1.4%. There are a few reasons why the move was so well received; it finally removed the uncertainty surrounding if/when the Fed would hike, the decision reflects well on the health of the US economy and the accompanying statement and press conference cut a slightly dovish but not downbeat tone with little mention of the Chinese slowdown. The move higher signifies that the US economy has healed sufficiently to start another tightening cycle however it seems that we will not see a rise at every meeting like the last cycle and may have to wait until June for the next 25bp increase. Cable initially dropped from around 1.50 to 1.4965 in the minutes after the announcement then jumped close to 1.51 before falling away. Overnight it has traded as low as 1.4920 and currently sits at 1.4940. Given the surge in European markets this morning it looks likely American markets will enjoy a profitable day which could be the beginning of a Santa Rally as head towards Christmas. Janet Yellen and the rest of the FOMC will no doubt be very satisfied with the reaction given the hammering they received in September. Later today we have Retail Sales from the UK with a 0.6% increase expected. Philly Fed and Unemployment data is out from the States this afternoon.

We expect a range today in the GBP/USD rate of 1.49 – 1.5110

Euro: EUR/USD mirrored cables jumpiness around the time of the Fed decision moving higher then lower on the release. It briefly broke through 1.10 then dropped to as low as 1.0830. It currently sits at 1.0860. The DAX has soared over the past couple of days as traders instead of buying the rumour selling the fact around the Fed decision have bought the rumour and bought the fact, it’s up nearly 600 points since Monday. Today see the monthly German IFO Business Climate survey with an uptick from 109 to 109.2 anticipated. GBP/EUR is at 1.3740.

We expect a range today in the GBP/EUR rate of 1.3710 – 1.3870

Aussie and Kiwi Dollars: Despite soaring stocks which normally benefit the Aussie and Kiwi the commodities reaction has been muted after the news from Washington. The ongoing commodity rout has kept the antipodeans low with AUD/USD at .7195 and NZD/USD at .6740 currently. New Zealand saw a strong Q3 GDP release overnight printing 0.9% for the quarter. GBP/AUD is at 2.0750 and GBP/NZD is at 2.2140

We expect a range today in the GBP/AUD rate of 2.0655 – 2.0850

We expect a range today in the GBP/NZD rate of 2.2020 – 2.2245

Data Releases

AUD: No data

EUR: German IFO Business Climate

GBP: Retail Sales

NZD: ANZ Business Confidence

USD: Philly Fed Manufacturing Index; Unemployment Claims

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