The Fed Remains Reserved: Dollar Down, Wall-Street Up

The Federal Reserve concluded its Federal Open Market Committee yesterday, announcing at a press conference that contrary to market expectations, U.S. interest rates would rise at a slower pace. Forecasts released by the Fed still indicate that rates would rise before the end of the year; however they lowered their interest rate forecasts for 2016 and 2017, indicating that the Fed is not as certain about U.S. economic strength in the long-term. While the dollar sagged after the announcement, Wall-Street received a boost after a number of low-volume trading sessions. The Dow Jones Industrial Average rose 31.26 points (0.2%) to trade at 17935.74, the S&P 500 index rose 4.15 points (0.2%) to trade at 2100.44, and the Nasdaq Composite Index added 9.33 points (0.2%) to trade at 5064.88.

U.S. stocks rallied since the Federal Reserve commenced its easy-money policy in 2009. While the S&P 500 tripled since then, the last year has been capped by concerns over over-valuation introduced by uneven earning reports and limited economic growth. So far in 2015, the S&P 500 added just 2% and the Dow Jones added just 0.6%. Higher interest rates limit the amount of money in circulation due to higher borrowing costs, usually leading to higher-valued currency. The dollar reacted negatively to the Fed’s uncertainty with declines. The dollar index fell 0.2% and is currently at 94.088 after declining 0.8% in the previous session. Against the yen, the dollar declined 0.3%, down from its over-night high. The euro gained 0.2% on the dollar to trade at 1.1362 after gaining 0.8% on the previous session.

In the meantime, European stock markets continued to be pushed around by news regarding Greece. The situation is expected to continue until the current rift between Greece and its creditors is resolved. It should be noted that if Greece fails to deliver repayments due at the end of the month it may default and possibly leave the eurobehind. The UK’s FTSE 100 lowered by 0.3% as major components such as Marks & Spencer Group (LONDON:MKS), Tesco (LONDON:TSCO) and Intercontinental Hotels Group (LONDON:IHG) fall nearly 1.5% each. The French CAC 40 fell nearly 1% as major components such as Carrefour (PARIS:CARR) decline more than 4% and Accor (PARIS:ACCP), Danone and L’Oreal fall about 2%. The German DAX fell 0.5% as nearly all shares post declines.

Traders are looking forward to a slew of economic reports. The UK will release retail sales data today, followed by Eurozone wage data and U.S. consumer price data (CPI). The Consumer Price Index offers an estimate for inflation. U.S. jobless claims will be released later today as well.