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Not being surprised

Fed ploughs ahead

Ahead of yesterday's Federal Open Market Committee announcement investors were expecting a quarter-percentage-point increase in the Funds rate on the day, together with an indication of three more in 2019 and two in 2020. They were also looking for a subtle linguistic alteration to the statement. That is exactly what they got.

The target for the federal funds rate went up by 25 basis points to 2% - 2.25% and the bit about keeping policy "accommodative" (relaxed) was no longer there. In the accompanying economic projections (3) the "dot plot" of FOMC members' expectations pointed to three further increases in 2018 and two more the following year. Fed chairman Jay Powell asked investors not to read too much into the change of language(4). He did concede that there "is a risk" of trade wars stoking inflation but saw no immediate threat.

The reaction was just as expected. The dollar went nowhere and the US president, who is "basically… a low-interest-rate person" said of the tightening move "I am not happy about that". In the end the US dollar was a fifth of a cent higher against sterling and picked up a dozen ticks against the euro.

Two-legged stool

If the FOMC decision was widely expected, so was the US administration's decision to go ahead with a bilateral US-Mexico trade deal that ignores Canada. The timing is linked to the Mexican president's wish to sign the agreement before he leaves office. But the White House commentary caught investors by surprise, hurting the Loonie.

Trump said of Canada "we don't like their representative very much" and told journalists that he had refused to meet with premier Justin Trudeau. The escalation of bad feeling between Washington and Ottawa led investors to mark down the Canadian dollar. It was the day's biggest loser, dropping half a US cent and giving up nearly one cent to sterling.

Wednesday's top performer, for the unlikeliest of reasons, was the South African rand. It strengthened by 1.6%, principally as a result of president Cyril Ramaphosa saying in a TV interview that "the rand is undervalued at the moment". If only it were always that easy…

Breaking news

A week's worth of ecostats will appear in the next two days, mainly because statistics offices will be closed for the last two days of September. There will be speeches by at least nine central bankers. But, more important, the euro is under pressure as London opens today.

The upcoming Italian budget has been an ongoing cause for concern, the main worry being that the deficit could widen beyond permitted EU levels.  Thus far there has been a guarded assumption that the coalition government in Rome would do the right thing. But a piece in Corriere della Sera this morning has put a cat among the pigeons.

The price movements reported daily in this column relate to the difference between 0600 one day and 0600 on another. Since 0600 this morning the euro has lost half a US cent and fallen by quarter of a cent against sterling.  Watch this space.

USD unmoved by widely-expected rate hike

USD unmoved by widely-expected rate hike

CAD falls on NAFTA split

CAD falls on NAFTA split

ZAR sent higher by presidential comment

ZAR sent higher by presidential comment

EUR hurt this morning by Italian budget concerns

EUR hurt this morning by Italian budget concerns

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