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Market View

Fed Holds Back on Rate Hikes

Saturday, September 19, 2015 1:22 AM GMT

- US Equities Close: DJIA 16674.68 (-0.39%); S&P500 1990.20 (-0.26%); NASDAQ 4893.95 (+0.10%).

- Aussie, NZ Dollars Rise as Euro Falls Amid Post-FOMC. (Source: DailyFX)

- RBA's Stevens: sees low rates in Japan, EU, US for number of years. (Source: DailyFX)

- In a widely expected move, the US Federal Reserve left its benchmark interest rate unchanged overnight, forgoing the opportunity to make its first increase in more than 9 years. Instead the Fed decided to take a wait and see approach, focusing on the major domestic issue of low inflation and of course the global economic uncertainty that has sent shockwaves through world markets over the recent past to justify its decision.The Fed said “recent global economic and financial developments may restrain economic activity,” alluding to the tumult that broke out across the spectrum of asset classes in mid-August. The threat of slower US growth against a backdrop of lingering weakness in the Eurozone and China appears to have undermined overall global output bets, weighing on sentiment.  (Source: ForexFactory)

- When the Federal Reserve drove its target interest rate near zero in late 2008, it sparked an economic debate about the risks of having nowhere lower to go, and in particular the financial bubbles it might stoke. Six years later few bubbles are in sight, but a new risk has emerged: that the zero has become an effective anchor on interest rates that is proving far more difficult to abandon than the Fed expected. Three major central banks have hit the zero limit, the Fed, the European Central Bank and the Bank of Japan. None have successfully escaped it and the ECB looks set to extend its money printing program. (Source: Reuters)

- USD/JPY rate unlikely to be toward 125 Says Kuroda will continue on policy course Says reaching 2% inflation goal may take time Says USD/JPY may move toward 115-120 range. (Source: ForexLive)

- A quiet economic calendar in European trading hours is likely to see risk appetite remain in the driver’s seat. S&P 500 futures are pointing higher, hinting a risk-on mood is poised to prevail into the week-end. This bodes well for higher-yielding currencies while spelling trouble for anti-risk alternatives including the Euro and the Japanese Yen. (Source: Yahoo! Finance)

- Japan's Economy Minister Amari: Think Fed made appropriate decision, Fed decision appropriate in view of world and US economy. (Source: FXStreet)

- With the Fed holding back on rate hikes, may delay the deleveraging of risk and dampen the need for the BoJ to upgrade its QQE program.  (Source: FXStreet)

- Given that we look for no hike in September and consequently think the FOMC will take the 2015 median Fed Funds ‘dot’ down to signal just one hike this year and lower the end 2016 median rate ’dot’,  we believe the USD will come under pressure near term given that the market is pricing a non-negligible probability of a hike this month (some 25%). Looking at the betas from our Danske Bank Short-Term Financial Models, we observe that EUR/USD appears most sensitive to relative rates (2Y swap spread) among the G3 currencies and although a positive beta to risk appetite (Vix volatility), as mentioned above, complicates the near-term outlook, we judge that EUR/USD on the margin is in for a short-term bounce on a softer Fed. Given that both JPY and EUR currently trade as safe havens and that beta to risk appetite (Vix volatility) is identical for EUR/USD and USD/JPY (but opposite sign), we also expect USD/JPY to remain under pressure in the very short term.  (Source: eFXStreet)


- Today’s Upcoming Events: EZ current account, US leading indicators, bonds spread.

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