Kiwi outperforms as Fed fails to meet market rate hike expectations

Key Movers

The US dollar shifted lower overnight as the Fed’s program of asset purchase reductions was largely in line with market expectations and policy makers refused to be drawn into bringing forward expectations for an interest rate hike. The FOMC remains committed to maintaining its transitory inflation outlook, although it did concede higher inflation will be prolonged and it doesn’t expect price pressures to normalise until the middle of next year. Fed President Jerome Powell suggested the Fed is prepared to be patient in assessing economic conditions and price pressures. With the USD under pressure the euro has pushed back above 1.16, while sterling has extended toward 1.37. Our attentions turn now to the Bank of England policy update. The market appears split on whether the MPC will opt to raise interest rates by 15 basis points to 0.25% in a bid to combat stubborn and persistent inflation pressures. The out of cycle hike could add pressure to the GBP, as markets see it as a potential drag on the broader economic recovery.