In an unsurprising move on Wednesday the U.S. Federal Reserve outlined a plan to reduce its $4.2 trillion bond portfolio and raised interest rates a quarter percentage point to a target range of 1 percent to 1.25 percent, but the markets didn’t react with the optimism displayed in the sessions leading up to the announcement. Instead, political turmoil in Washington and weaker than expected inflation numbers May retail sales data subdued markets and caused the dollar to struggle.
The core rate of inflation increased at 1.7 percent on the year, the fourth consecutive month of deceleration and the slowest overall pace in two years. The Fed shrugged off the inflation data claiming that it was temporary but the market response indicated skepticism of these claims. The dollar eased slightly against the yen to 109.61 as of 6:05 a.m. GMT on Thursday, down from 110.07 yen at the same time on Wednesday, but up from the eight-week low of 108.81 yen hit later in the day on Wednesday.
The Commerce Department reported that retail sales fell 0.3 percent in May due to a steep decline in automobile purchases as well as appliance and electronics sales.
Political Pressures Weigh Markets
An announcement on Wednesday that U.S. President Donald Trump is being investigated by special counsel Robert Bueller for possible obstruction of justice also impacted risk sentiment in Thursday’s early trade. Mueller is examining alleged Russian interference in the 2016 U.S. presidential election, a claim vehemently denied by Trump. Also weighing on risk appetite was the shooting of Steve Scalise by a disgruntled gunman at Congressional baseball practice on Wednesday. Scalise is the third highest ranking Republican in the House of Representatives and he remains in critical condition.