Market wrap: FOMC was unsurprising - Westpac

Analysts at Westpac offered a market wrap.

Key Quotes:

"The FOMC was unsurprising, members voting unanimously to leave rates unchanged as widely expected and signaling further “gradual” increases going forward. Their statement acknowledged firmer inflation but downplayed any policy implications by stressing the “symmetric” target. Otherwise the statement stuck with all the familiar descriptors: economic activity is “moderate”, the risks are “roughly balanced” and conditions are expected to, “evolve in a manner that will warrant further gradual increases”. US equities bounced a little initially, then weakened into the NY close.

Fed funds futures yields fell fractionally and the 2 year treasury slipped from 2.51% to 2.49% on the slightly cautious notes in the FOMC statement, especially the use of “symmetric” which makes clear that if/when inflation finally runs above 2%, it would not prompt an aggressive interest rate response. The 10 year treasury yield peaked at 2.99% in London trade, edging lower in NY.

But while US short-end yields finished NY trade lower, the US dollar rebounded after an initial slide on the FOMC statement. EUR/USD popped above 1.20 post-Fed but then unwound to lows since 11 January, under 1.1940. GBP/USD touched 1.3650, then rolled over to 1.3555, a low since 12 January. USD/JPY briefly broke 110.00 before the Fed decision, dipped to 109.60 then recovered.

AUD/USD briefly spiked from 0.7495 to 0.7537 post-FOMC, but 2 hours later was back at 0.7485, about flat on the day. NZD similarly had a brief spike from 0.7000 to 0.7030 before falling to 0.6985 – a fresh four-month low. AUD/NZD rose from 1.0685 to 1.0725. 

Data had little impact. Eurozone Q1 GDP met expectations, up 0.4%qtr, 2.5%yr. US Apr private payrolls from processing firm ADP rose 204k."