By: Alex Brandt

The Fed raising its discount rate by 25 basis points to .75% shocked the markets earlier today. The US dollar after weakening during early US trade, promptly rallied at the news.

The Fed appears to be making good on its word about starting to remove the excess stimulus measures from the economy. The prospect of the US hiking rates before the EU and other major developed countries has made investors dollar bullish. This change in sentiment can be seen in the USD/JPY as the pair reached a new high of 92.10 upon the news.

The dollar rallied across the board against all the major pairs, with GBP/USD suffering the most. The commodity currencies such as AUD/USD and USD/CAD held up the strongest, but still weakened.  However, the Fed has publicly said that the rise of the discount rate does not mean that they will be raising other rates any time soon this year.  They also mentioned that their outlook of the US economy has not changed and there are still risks in tightening monetary policy too soon.

There are reports of EUR/USD sell orders tipped up at 1.3500/20 and more at 1.3550, buy orders 1.3440/50. Cable led the way lower for much of the session with stops being triggered regularly, especially after the break below 1.5500. Many bids were pulled after the rate announcement and the lack of liquidity caused by the Chinese New Year holiday exacerbated all moves. Cable fell in almost a straight line from 1.5630 to 1.5410 after the Fed. There has been vague unconfirmed talk of ACB buying and/or option protection ahead of 1.5400. Heavy stops expected below.

A Telegraph article titled "Britain at risk of worse deficit crisis than Greece." has pushed cable  to a low of 1.5380 so far. EUR/GBP has also rallied amid the negative headlines on the UK economy. The AUD/USD fell also but has been steadied by solid buying interest around .8900. Optimistic comments from the RBA chief have also helped the AUD/USD maintain some strength against the dollar.

Highlights:
EUR/USD - Moves below 1.35
AUD/USD - Breaks Trend line support
USD/CHF - Rallies on raise of Fed Discount Rate

Eurozone Economic Reports for Today
7:00 GMT:  German producer prices for January expected +0.3% m/m, -4.0% y/y

07:45 GMT:  French business confidence indicator for February expected 93 from 92; production outlook indicator expected -3 from -4; own-company production outlook expected -8 from -9

08:00 GMT: French manufacturing PMI for February expected 55.3 from 55.4;  services PMI expected 56.4 from 56.3

08:30 GMT: German manufacturing PMI for February expected 53.8 from 53.7; services PMI expected 52.4 from 52.2

09:00 GMT: Euro zone current account for December

09:00 GMT: Italian industrial orders for December expected -0.5% m/m , -2.7% y/y;  industrial sales

09:00 GMT: Euro zone manufacturing PMI for February expected 52.7 from 52.4;  services PMI expected unchanged at 52.5; composite PMI expected 53.5 from 53.7 .