Fed com­mit­ment to higher rates sup­ports Green­back; be care­ful of GBP profit-tak­ing

Financial Mirror (Cyprus) - - WORLD - By Jameel Ahmad, Global Head of Cur­rency Strat­egy and Mar­ket Re­search

Re­in­forced ex­pec­ta­tions over higher in­ter­est rates in the United States af­ter the Fed­eral Re­serve pro­vided a con­sis­tent nar­ra­tive that pol­i­cy­mak­ers re­main com­mit­ted to “fur­ther grad­ual” rate hikes in the lat­est mon­e­tary pol­icy state­ment has pro­vided the needed cat­a­lyst to sup­port the Dol­lar.

The Green­back is trend­ing higher against the ma­jor­ity of its coun­ter­parts in the early hours of Fri­day, in­clud­ing all of the G10, ex­cept for the Ja­panese Yen. It re­mains un­changed or higher against all of the cur­ren­cies in EMEA ex­cept for mar­ginal gains in the Rus­sian Rou­ble and all of the Asian bas­ket mi­nus the Yen and In­dian Ru­pee.

There are no ma­jor sur­prises from the Fed­eral Re­serve de­ci­sion to be hon­est, be­cause ev­ery­one ex­pected in­ter­est rates to be un­changed in Novem­ber. But in­vestors wanted the nec­es­sary guid­ance that the cen­tral bank re­mains com­mit­ted to the same path of mon­e­tary pol­icy that they are ex­pect­ing un­til the end of 2019, and is what they re­ceived.

What was ar­guably the most in­ter­est­ing take­away from the Fed state­ment is the lack of ac­knowl­edge­ment shown from the cen­tral bank re­gard­ing the re­cent lev­els of global mar­ket volatil­ity, which sug­gests to in­vestors the re­silience of the Fed to main­tain on course with in­ter­est rate hike am­bi­tions.

As we move for­ward and digest the pol­icy state­ment fur­ther, it wouldn’t be a ma­jor sur­prise to see the cen­tral bank di­ver­gence story re­turn­ing to the at­ten­tion of traders.

This is a pos­si­ble rea­son be­hind the neg­a­tive mo­men­tum seen in stock mar­kets in Asia overnight, de­spite the ini­tial thoughts that con­cerns over global growth slow­ing down and what a po­ten­tial de­cline in Chi­nese eco­nomic mo­men­tum might pos­si­bly mean to the world econ­omy. I would per­son­ally put the down­turn in stock mo­men­tum down to con­cerns about higher in­ter­est rate pol­icy in the United States, and the re­turn of the di­ver­gence in cen­tral bank story.

Away from the af­ter­math of the lat­est FOMC state­ment, the Bri­tish Pound is go­ing to at­tract the at­ten­tion in­ter­na­tional in­vestors as we wrap up the trad­ing week.

The near 2% rally in the Bri­tish Pound month-to-date right­fully sug­gests that in­vestors are be­com­ing con­fi­dent that a Brexit agree­ment is close to be­ing an­nounced. The theme of a soon-to-be an­nounced Brexit agree­ment is some­thing that is gain­ing fur­ther steam across me­dia.

I would how­ever point out that this news is get­ting close to be­ing “priced” into the Pound and po­ten­tial profit-tak­ing is a risk in­vestor’s need to ac­cess.


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