Seems the FED is focussing on the FCI (Financial Conditions
Index) and continues on the rate hike path with hawkish outlook.
Fed has made a hawkish hike unlike what market expected. It
has taken into its stride the recent data and said that conditions are in
place for inflation to rise further. Overall growth forecasts have been
retained or raised, unemployment forecast has been reduced while interest rate
forecasts have been kept as it is, except for 2019 which has been reduced by 10
bps. Inflation forecast for 2017 has been reduced by 20 bps.
Most importantly the FED has given a clear path of balance
sheet reduction which was unexpected. It will start later this year at USD 10
bn per month and gradually rise to USD 50 bn per month and the revision will
depend on data which will be revised every quarter.
US yields are up, 2 year at 1.343 as compared to 1.292
before the FOMC release.
USD index can move higher as 96.50 was acting as a critical
support (CMP 96.93). USDJPY can head towards 110.20-110.50 (CMP 109.65).
Equities have reacted marginally only. USDINR up 10 p in
offshore markets near 64.20 from 64.08 pre FOMC.
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