Three more rate hikes in 2017

16 December, 2016

FED decision
The Dollar reached its 14 year peak against its rivals on Thursday after the FED supplied markets with hawkish cues about the rate hikes in 2017, reviving Dollar rally and shaking the emerging markets.

The policymakers raised lending rate by a quarter and signalled for three more hikes in next year due to Trump promises to spur the economic growth by tax cuts, increased spending and deregulation. It was quite an expected decision for the financial markets, however another three rate hikes instead of the projected two have caught traders by surprise. 

DXY
The dollar index extended its rally by 0.63% percent to 102.67 at the time of writing, beating the peak of year 2003. The biggest declines among majors were seen with the Japanese Yen, Swiss Franc and Euro. Surprisingly, the Pound was more resilient to the relentless Dollar rally.

Forex

The US currency soared to a 12-month high against the Yen reaching 118.40 level as the low-yield Japanese currency was out of favour with investors, as well as, other safe heavens such as Swiss Franc and Gold. Swiss currency plunged 0.66% while bullion posted a steep drop by 2.75%.

Rising appeal of the US government bonds due to higher profitability puts more pressure on the emerging Asian currencies. The Chinese Yuan fell to the lowest level in the past eight years after the country’s Central Bank set the median exchange rate of the Yuan to the same level as Dollar, at its lowest level since mid-2008. Low-yielding currencies such as the Singapore dollar and South Korean won, but still felt the pressure as the investors are concerns of the capital outflow risks from the region’s economies of the region, where Dollar nominated assets.

After the FED decision, the yield on 10-year Treasury bonds jumped by 2.587 percent, the highest since September 2014, while the stocks of Wall Street showed the largest decline in two months.

Oceania 
The Australian Dollar fell 0.32% extending the 1.2% drop from the previous day, New Zealand dollar touched the minimum of 10 days at $ 0.7070.  At the same time, the Australian currency touched a peak of 11 months against the Yen, rising to 87.27 Yen while kiwi struck its peak of 18 months at 83.56 yen.


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