27/09/2018 - Fed Hikes Interest Rates As Expected

USD

Last night saw the highly anticipated Fed Meeting, and markets were not disappointed as the Federal Reserve raised rates by 25 basis point from 2% to 2.25%. This rate hike was priced in at 100% probability by traders, so all eyes were on the Fed’s rhetoric for future rate rises. They maintained the dot-plot and indicated that we would see another increase in December and a further 3 in 2019. Further to this, GDP forecasts were upgraded for 2018 and 2019.

The USD initially dropped against its major peers due to the lack of market volatility and the fairly mixed Fed message. The removal of the word “accommodative” was interpreted as dovish, leaning to a belief that the FED is entering the end of its rate cycle. However GBP/USD is now trending lower as the greenback is rising off the back of Fed Chair Powell assuring the US Press that the adjustment does not imply a change in its gradual monetary policy path.

GBP

Brexit speculation continued to dominate the Pound on Wednesday as there was little in the way of market-moving domestic data. The Labour Party conference came to a close, as leader Jeremy Corbyn said that his party would vote against a deal based on May’s plan. The Conservative Party’s annual conference is next week, and all attention will be on whether May can win over the critics of her Brexit plan.

Key Announcements

13:30 – USD: GDP Annualized (Q2), expected to come in at 4.2%
14:30 – EUR: ECB President Draghi Speech
15:00 – GBP: BOE Governor Carney Speech
21:30 – USD: FED Chairman Powell Speech