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Daily Review 22.09.2016

Fed leaves rate steady but hints on possible hike at end of year

The Federal Reserve has decided to leave its interest rate unchanged on Wednesday, stating that a more evidence of progress is needed toward its goals, while leaving the door open for a possible hike this December, in their two-day policy meeting concluded yesterday.

Fed’s decision has sparked a debate on its credibility but Fed Chair Janet Yellen claimed that it does not reflect a lack of confidence in the economy.

The interest rates are still ranging from 0.25% to 0.50% after majority of the officials did not give the hike a nod.

Now the focus shifted to December where the central bank would likely to raise rate depending on how the economy, inflation and markets perform in the remaining months of the year.

In effect, the US dollar logged to its poorest performance since September 16 as the dollar index, which measures the greenback against its major counterparts, touched a low of 95.398.

The euro closed to a session-high of 1.1196 while the Australian dollar continued to climb and was last trading at 76.37, up 0.10%.

In Wall Street, stocks indices took advantage and rallied on an extremely volatile trading. The S&P 500 index gathered 23.36 points, or 1.1% to settle at 2 163.12, supported by the 2.1% climb in energy sector.

The Dow Jones futures added 163.74 points. Or 0.9% to close at 128 293.70 while the NASDAQ Composite registered another record close of 5 295.18 after inching 53.83 points up, or 1%, to surpass its previous all-time high recorded on September 7.

Bank of Japan shifts focus on bond yields

The Bank of Japan refrained from pushing the interest rates to negative territory and decided to modify its existing monetary policy framework instead at its central bank meeting ended on Wednesday.

The bank abandoned its 80-trillion target and announced yesterday that it will purchase Japanese government bonds and will aim to keep the 10-year JGB rate at the current level of 0%.

The BOJ believed that this move will allow for greater flexibility and make necessary adjustments based on the view on inflation.

With the decision, the Japanese yen continued to strengthen against the US dollar as it rose 0.09% and was last trading at 100.45 while Japan’s main index, the Nikkei 225, finished up 315.47 points, or 1.91% at 16 807.62.

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