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March 2017

US Federal Reserve raises rate

Published: Thursday 16 March 2017

  • US Federal Reserve raises rate but remains cautious
  • NZ Gross Domestic Product growth slows
  • Aussie data and Reserve Bank of Australia bulletin let AUD strengthen
  • Far right party fails to dominate Dutch election
By David Johnson
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As mentioned yesterday, the US Federal Reserve was widely forecast to raise interest rates when they met on Wednesday and they did as the markets expected. However, the tone of their statement was more cautious than many anticipated and that caused the US Dollar to weaken a little after its initial rally. The GBP-USD rate starts the day a cent or so higher than yesterday. The Fed doesn’t share the unbridled optimism that pervades equities and bond markets; and that may well mean fewer rate hikes in the year ahead than the two or three already priced into the USD’s value. The Fed’s caution was born out by the slowdown in retail sales and mixed consumer price inflation data released earlier on Wednesday. 
 
Sterling, it should be said, was also boosted by a drop in the unemployment rate to just 4.7%; a level most G8 countries would give their right arm for. Average wages grew 2.2%; a tad down on the previous level, but still clearly ahead of consumer price inflation. Sterling’s next test is today’s Bank of England monetary policy decision. No change is expected from the central bank, but their statements and the tone thereof always carry the potential to  cause concern. Whether he wants to or not, Mark Carney does have a habit of weakening the Pound, so don’t be alarmed if he does so again today.
 
Overnight news from Australasia was quite downbeat. New Zealand’s GDP growth slowed considerably in Q4, from an annualised 3.3% to just 2.7%. It is still pretty buoyant by local standards but it was below forecasts and has allowed the NZ dollar to weaken. 
 
In Australia, the unemployment rate jumped to 5.9%; up from 5.7% previously as 33,500 part -time jobs were lost. Consumer inflation fell to 4.0%. That is still high by global economic standards but all of this was overshadowed by the Reserve Bank of Australia’s economic bulletin which was quite upbeat. All in all, the chances of another Australian interest rate  cut are pretty much zero right now, so a stronger Aussie Dollar is not surprising. 
 
Overnight news from Holland is that Mark Rutte appears to have seen off the far right challenge of Geert Wilders and, although the official results are not released until 21st March, the anti-EU and Anti-immigration front has failed to break through in the way they had hoped. The Euro is pretty stable as a result but Marine Le pen is making headway in the French elections and that all unfolds over the next 45 days or so. 
 
Aside from the Bank of England’s announcement, there isn’t a great deal of top tier data to be released today. However, one Manchester United fan who travelled to Russia to see his team play FC Rostov has shared some of the helpful advice his hotel provided  to each visitor. It included a very comprehensive section entitled, ‘If you are held hostage or kidnapped’. to summarise, you shouldn’t resist kidnappers, you should be aware that some kidnappers are of unsound mind and the advice to lie low during the release of hostages by terrorists. Would it make you keen to return to Russia?
 
Joke
 
It's late night on a road between the Republic of Ireland and Belfast. A guy gets pulled over in his car by a pair of dudes in balaclavas and military camo gear. They point a gun at him and one guy says in a menacing voice, "Are you a Catholic or a Protestant?"
The driver thinks fast and says, "Neither, actually, I'm Jewish.”
The guy with the gun turns to his mate and says, “Hey Mohammed, it took all night but we've finally found one."


For more information, infographics and the latest currency insights, visit www.halofinancial.com/news
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