Daily FX Update, 18 June 2015

OVERNIGHT MARKET UPDATE:

·         The June FOMC statement was more positive in its assessment of activity than April’s, noting that the economy is expanding at a moderate pace and that “Since the committee last met in April, the pace of job gains has picked up and labour-market gains have improved further.” It is clear that the US Federal Reserve remains on track to raise rates later this year. However, 2015 growth forecasts were revised down, and unemployment rate forecasts were revised up. The average interest rate projections were actually lowered – despite the median being unchanged in 2015.

·         The game of chicken continues between Greece and its creditors as Greek PM Tsipras commented that he was ready to ”assume the responsibility” for rejecting an “unfair” deal with creditors. It appears both sides are preparing for a failure of talks.

·         The Bank of England MPC voted 9-0 to keep rates on hold as expected. The MPC's assessment that pay growth has accelerated and may exceed their forecasts and that the factors lowering inflation may fade fairly shortly underlines expectations that the next move in rates is up.  

·         In the currency markets, the USD broadly sold off after the Fed delivered a cautious message. USD/JPY reversed Kuroda induced weakness before the FOMC sent it lower.       

·         US 2-year yield closed lower in reaction to the Fed's highly anticipated monetary policy announcement.             

·         Equities rose in the US following the FOMC statement. US equities had a day of two halves, with a positive response to the Fed’s pronouncements unwinding some earlier losses. 

·         WTI prices came under pressure after an EIA report showed that the operating capacity of refineries fell last week from 94.6% to 93.1%. Crude prices have been supported by the strong demand from refineries and their reluctance to undertake their normal maintenance.                        

Gold found some support late in the day after the Fed indicated raising rates would be done more gradually than the market expected, resulting in a weaker USD.