The Fed seems back on track again for an interest rate hike in December. At its policy meeting Wednesday, the central bank gave clear indication that the possibility of a rate hike by the end of 2015 is a strong one.
Before the FOMC meeting, investors had expected the Fed to remain pat on rates and were certain the next possible date for the rate increase would be March. The announcement of a possible December move surprised everyone and sent investors scrambling to place futures contracts implying a 43 percent possibility compared to 34 percent prior to the statement.
The U.S. dollar rose sharply on the news and yields for U.S. government debt soared in anticipation of higher rates. U.S. stock prices initially fell but regained motion, ending the day sharply higher.
USD/EUR
The news sent the euro southward, settling at 1.0918, a two-month low against the U.S. dollar after having dropped to 1.0894 shortly after the meeting. A weaker currency would offer a potential relief for the Eurozone which is dealing with a decline in demand for its products in addition to its weak inflation.
The two currencies seem to be working in tandem. While the Fed is moving towards an interest rate liftoff, the ECB is considering more stimulus moves.
Strategists at ANZ believe that, "The EUR trade becomes easier with the Fed and ECB on opposing tracks."
In making the decision, the central bank downplayed recent global financial market turmoil and pointed to the need for additional job growth despite gradual healing of the U.S. labor market.
A statement released following the 2-day meeting said, "In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress - both realized and expected - toward its objectives of maximum employment and 2 percent inflation.”