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Fed disappoints

Taking a break

It is probably fair to assume that the American president sees yesterday's rate hike by the Fed as a "mistake". If so, he would not be the only one. From across the Pond, lower equity prices and a middling dollar do not together look much of a policy triumph.

The Federal Open Market Committee's statement yesterday evening scored well under 50. The increase in the target for the federal funds rate to "2-1/4 to 2‑1/2 percent" was well enough expected but the language, both of the statement and of the Fed chairman at his press conference, indicated that the FOMC's primary concern is inflation and employment, not the buoyancy of financial markets or the US dollar.

The mention of "some" further gradual increases in the funds rate put paid to any idea that there might be just one hike in 2019 and the "dot plot" of members' expectations indicated two increases next year followed by another one in 2020. Altogether, neither the statement nor Jay Powell's commentary had the dovish tilt that investors had expected. Equities and "risky" currencies took an immediate bath while the US dollar jumped a quarter of a cent higher.

Biggest losers

Perplexingly, the US dollar gave back most of its gains during this morning's Far East session. It is just a quarter of a cent higher on the day against sterling and only a handful of ticks firmer against the euro. More reasonably, the biggest losers are the Australian and NZ dollars.

The decline of the antipodeans is entirely the result of the Fed's decision and direction. A downward revision to third quarter growth in New Zealand, from 0.6% to 0.3%, was no more than a punctuation mark in the Kiwi's southerly trek. Similarly, a 37k jump in Australian employment did little to slow the Aussie's retreat. The NZ dollar is 1.9% lower on the day and the Aussie is down by 1.3%.

Sterling's positive average performance - a 0.3% gain - was exaggerated by the fall of the AUD and NZD. It has given up a fifth of a euro cent and half a yen though it is unchanged against the Swiss franc. Yesterday's UK consumer price figures made no difference, not least because headline inflation was in line with forecasts at 2.3%.

The Old Lady takes a nap

Today brings the last announcement of the year from the Bank of England's Monetary Policy Committee. It is unlikely to be as controversial as the one yesterday from the Fed. Inflation at 2.3% is not uncomfortable and Brexit uncertainty is far too great to allow anything other than a no-change decision.

There are, however, plenty of UK ecostats for the pound to handle in the next 48 hours. Today there are retail sales data for November; a 0.3% monthly increase is forecast. Tomorrow brings the finalised gross domestic product figures for Q3; growth is expected to be unchanged at 0.6%.

The other statistical highlights come from North America tomorrow, with US durable goods orders and GDP. There will undoubtedly be a dozen more Brexit updates along the way.

GBP marginally firmer on average

GBP marginally firmer on average

USD slightly firmer after Fed rate hike

USD slightly firmer after Fed rate hike

AUD hit by higher US rate outlook

AUD hit by higher US rate outlook

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