The USD was sold off significantly against the other major currencies following the FOMC decision to not only leave rates unchanged at 1.50-1.75%, but also Fed Chairman Powell’s remarks that there may be no need for any rate hikes in 2020. His comments indicated that the Fed projects inflation to remain near target through 2022, therefore interest rates may likely stay at current levels until then. Fed funds rate projections have been adjusted and now show projections of 1.6% for 2020. According to projections, interest rates will climb to 1.9% in 2021, indicating one rate hike, and to 2.1% in 2022, indicating another rate hike. Needless to say, the economy will influence what actions the Fed will take. This is good news for equities but bad news for the USD. Traders have sold the USD against EUR, CHF, GBP and CHF.
The European Central Bank (ECB) kept its rates unchanged on Thursday as new President Christine Lagarde chaired her first monetary policy meeting in Frankfurt. The Governing Council voted to keep the main deposit rate at the historic low of -0.5% which was expected by market analysts. The marginal lending facility rate remained at 0.25%.
The central bank also stated that rates will remain at the current level or lower until the central bank has seen the inflation outlook “robustly converge” to that level on a consistent basis. The ECB also confirmed that net asset purchases had started at a monthly rate of 20 billion euros ($22.3 billion) and that this will continue to run “as long as necessary” to reinforce the accommodative policy stance. The euro is trading quietly following the announcement and equity markets dropping slightly after marginal early gains.
British citizens go to the polls today, with the latest reports showing the lead for the Conservative Party at around 9 points. Many constituencies are stating their races are close and the latest YouGov MRP poll shows the Conservatives only reaching a majority of 28 seats as opposed to earlier polls showing a majority of 68 seats. GBP is trading higher this morning and could strengthen given a Conservative Victory.
In a speech to business leaders in Okayama, BoJ Deputy Governor Amamiya said “downside risks to economic activity and prices, mainly regarding developments in the global economy, will continue to warrant attention”. He also said “for the time being, it's appropriate to tilt our monetary policy stance towards additional easing.”
The Canadian Dollar moved higher overnight after FOMC announcement and West Texas crude prices climbing above $59 per barrel. According to the International Energy Agency, global demand for oil rose by 900,000 barrels per day on a yearly basis in the third quarter of 2019. This was the highest annual growth in a year.
President Trump will meet with his trade advisors this morning to decide what to do on December 15th. His advisors are split on their opinions with Peter Navarro preferring to issue the tariffs, while Treasury Secretary Mnuchin would prefer a hold.