Federal Reserve Increase Interest Rate
- 20 March 2017
Fundamental Outlook The U.S. Federal Reserve hikes interest rates while Bank of Japan and Bank of England maintains unchanged. Netherland’s Prime Minister Rutte wins election and continues his reign on government amid public cheers. Euro currency recovers after the voting outcome.
American producer prices rose 0.3 percent in February and above forecast. Another report on core prices, excluding food and energy, also gained 0.3 percent. Consumer prices rose 0.1 percent in February versus 0.6 percent gains in previous month. Core prices, excluding food and energy, expanded 0.2 percent and matched forecast.
Federal Reserve increases overnight fed fund rate by 25 basis points and bring the borrowing cost to 0.75 – 1.0 percent. Precious metals and Dow Jones markets rose after the announcement as investors interpreted the prices have built into the hike by preceded decline over past 2 weeks.
The U.S. unemployment claims for the week ended 11 March steadied at 241,000 without much changes. Building permits expanded 1.21 million in February and lower than 1.29 million in previous month. Another report on housing starts jumped to 1.29 million and highest in past 4 months.
China industrial production on January-February kicked off high note by rising 6.3 percent on annual basis. Retail sales expanded 9.5 percent and versus 10.9 percent gains in December.
Japan’s core machinery orders shrank 3.2 percent in January after it gained 6.7 percent in previous month. Producer prices rose 1.0 percent from a year ago in February and matched forecast.
Bank of Japan maintains monetary policy unchanged after U.S. FED hiked interest rates. Policymakers hold on to JPY80 trillion of bonds holding on annual pace to keep a loose monetary liquidity in market.
German ZEW economic sentiment on institutional businesses reports 12.8 percent growth in March and higher than 10.4 percent gains in last month. Industrial production on Eurozone, including mines and utilities, rose 0.9 percent in January.
Netherland’s center-right Prime Minister Mark Rutte chalks a glorious victory over anti-Islam and anti-EU Geert Wilders in the national election. The turnout of 81 percent voters records the highest in 30 years and confirms the favor of liberalism while rejecting the proposal of anti-immigrant path by Wilders and his promise to "de-Islamicise" the Netherlands and quit the European Union.
U.K. claimant counts for jobless benefits improved in February by dropping 11,300 against a positive expectation. Average earnings over 3 months ended January gained 2.2 percent and lower than previous month. Unemployment rate shows better number at 4.7 percent in January. Crude inventories shrank 200,000 barrels last week and better than forecast that indicate probable increment.
The Bank of England (BOE) holds interest rates at the record low level of 0.25 percent and maintained asset purchases at £435 billion. However, the imminent trigger of Article 50 to execute an impending exit from European Union (EU) as well as breakaway from Scotland would likely cause an impact to England’s economy.
Technical Forecast USD/JPY dipped after rate hike against expectation. Market trend has fallen from 115.00 to 112.50 region before weekend. This week, we reckon the trend will be supported at 111.80 bottom but with small demand only, Topside is temporarily resisted at 114.00 level.
EUR/USD advanced from 1.0620 to 1.0780 region after FED hike. Technically, we forecast the trend will trade form 1.0670 – 1.0800 range while moving in sideways consolidation. Piercing above aforementioned resistance will initiate new unexpected bullish demand. Risk control is advised.
GBP/USD has recovered due to weaker Dollar sentiment last week. However, the market is still in an uncertain range of sideways movements entrapped inside 1.2150 – 1.2550 region. Trade well and stay cautious of the swinging range. Observe the BREXIT news that might lead a new breakthrough in either direction.
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DAR Wong is a registered fund manager in Singapore with 28 years of global trading experiences. You may reach him at email@example.com