Weekly Review March 20
The latest Federal Reserve policy decision was the centre-piece of the week, but the dollar registered net losses after the decision despite the rate increase as the move had already been priced in.
The Federal Reserve increased interest rates by a further 0.25% to a 0.75-1.00% range at the latest Federal Reserve Open Market Committee (FOMC) meeting. The revised FOMC projections for interest rates over the next two years were little changed with median estimates of a total of 3 rate increases for 2017.
Markets had been expecting a slightly more hawkish stance from the FOMC and hints over a faster pace of rate hikes and the dollar moved lower after the decision with a relatively neutral statement from chair Yellen.
US consumer prices rose 0.1% for February with the year-on-year increase rising to 2.7% from 2.5%, the highest rate for over four year, although the core rate edged lower to 2.2% from 2.3%.
There were strong releases for regional US PMI releases with no major impact from other data releases.
The dollar overall was unable to make headway and the trade-weighted index declined to lows close to the 100.00 level late in the week.
UK labour-market data was stronger than expected with the unemployment rate at an 11-year low of 4.7%, although there was a weaker than expected increase in average earnings.
As expected, the Bank of England held interest rates at 0.25% following the latest Monetary Policy Committee meeting. There was, however, an 8-1 vote for the decision as Forbes voted for a rate increase. Some other members also suggested that they had moved closer to a rate hike and Sterling rallied after the decision.
Scottish First Minister Sturgeon called for a second independence referendum before Spring 2019, although this potential timetable was rejected by Prime Minister May.
Sterling recovered losses against the Euro with EUR/GBP dipping to 10-day lows near 0.8660 while GBP/USD rallied to near 1.2400, the highest level for close to three weeks.
There were no major data releases from the Euro-zone during the week. ECB member Nowotny stated that there could be an increase in the deposit rate from -0.40% before an end of the quantitative easing programme.
There was a weaker than expected performance by the Freedom party in the Netherlands general election which provided some reassurance over Euro-zone political trends. There was no significant shift in French Presidential election polls.
The Euro rallied as markets speculated over a move towards tightening, although it was unable to hold its best levels.
The Bank of Japan left monetary policy on hold at the latest policy meeting. There was also no change by the Swiss National Bank with interest rates held at -0.75%.
The latest Australian employment data was weaker than expected.
Oil prices declined sharply on the week with concerns over rising US production undermining sentiment. Gold prices rallied significantly as the dollar came under pressure.
The G20 meeting was unable to agree on a continued pledge to avoid trade protectionism due to US opposition, but there was a continued commitment to avoiding competitive devaluations and disorderly currency markets.
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