Fed Goes ‘Further’

Janet Yellen went out with a whisper in her final FOMC meeting. In January, GBP was the top performer while the US dollar lagged. Australian building approvals are up next. The Premium Video below was recorded ahead of the Fed, highlights the  rationale to the latest GBP trades. 6 of the existing 8 trades are currently in profit.

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Janet Yellen has never craved the spotlight and she chose to make her departure without any special flourish. The statement didn't offer any strong hints about the path of rates. The main line of guidance called for “further gradual increases” in rates. The addition of the word “further” is a bit puzzling by may have been added to hint at a continuity of policy under Powell.

On inflation, the Fed dropped a reference to below-target inflation in the near-term but the most-notable change might have been a line saying market-implied inflation had increased recently.

Expectations for a hike in March were unchanged but beyond that it remains unclear. Presumably, Yellen wanted to leave the next signal to Powell and that's understandable.

The US dollar initially strengthened after the announcement but later gave back the gains. USD/JPY rose as high as 109.45 but slipped back to 109.18.

On the whole, moves in FX on the day were modest but the loonie was an exception as USD/CAD hit a 5-month low at 1.2251 before rebounding to 1.2312. One reason was a solid +0.4% rise in November GDP. That matched expectations but the climb came on strong manufacturing and that's a reason for optimism in the months ahead.

Another pair to watch is AUD/USD as it slipped to a six-day low. It's been on a tear for the past six weeks and it will bear worth closely watching if this is a bump in the road or deeper retracement. Yesterday's CPI numbers were soft and today building approvals are out. The consensus is for a 7.6% m/m drop after an 11.7% rise prior.