Thursday, 19 July, 2018

Fed policy meeting in focus this week

Trump Yellen 4x3 President Donald Trump and Fed Chair Janet Yellen Carlos Barria Reuters Composite by Bob Bryan Business Insider
Debra Rodriguez | 28 July, 2017, 00:52

Gold rose for a second day on Thursday, hitting a six-week high as the dollar dropped to a 13-month low after the US Federal Reserve indicated it would keep to a slow path of monetary tightening.

However GBP/USD was still able to advance by around a cent following the meeting as the central bank was a little more pessimistic in its outlook towards inflation.

While the Fed said it expected to start shrinking its massive holdings of bonds "relatively soon", the central bank also noted weakness in USA inflation more explicitly than before.

Instead Fed Chair Janet Yellen took the opportunity to discuss the bank's bond buying programme, signalling that it plans to begin reducing its massive bond portfolio in the near future as its seeks to normalise its balance sheet.

The central bank thinks the economy is strong enough to get by on its own after eight years of expansion, but senior officials want to see the annual pace of inflation return to 2%.

Fed fund futures prices show investors see only a 3 percent chance of a rate increase on Wednesday and just over a 50 percent chance of an increase by year end.

Global markets advanced and the dollar fell Thursday after the Federal Reserve's latest policy statement damped expectations for USA interest-rate increases.

US Federal Reserve's Open Market Committee (FOMC) kept interest rates unchanged, while at the past committee's meeting in mid-June the target rate was raised to 1-1.25% from 0.75-1.0%.

The US dollar index extended its year-to-date slide, falling to 93.67 - its shed 8.4 per cent this year and is at its lowest in more than 14 months. The Fed's previous statement said inflation was running "somewhat below" target.

The dollar jumped 0.7 percent against the Swiss franc to 0.9590 franc, its highest in almost a week. The fall in the dollar is most likely due to the euro's two-year high.

Investors had widely expected no changes to the Fed's interest rate, which helps set the cost of borrowing and lending around the country.

"Over the past two weeks the United States dollar has been under pressure and the lack of clear guidance by the Fed appears to have provided an additional excuse to sell the greenback", said Mr Catril.

Steady job creation in the economy has pushed the US unemployment rate to 4.3 percent, near a 16-year low. Brent crude, the global standard, gained 21 cents to $50.57 per barrel. Inflation as measured by the Fed's preferred measure, "core" consumer expenditure deflator, has fallen from 1.8 percent at the start of the year to a current rate of 1.4 percent.

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