The Federal Reserve has announced that it would keep interest rates unchanged despite numerous statements in favor of such a move. The decision not to raise rates has come amid concerns over the global economy, the markets’ recent volatility as well as lower-than-expected U.S. inflation data. However, the bank hasn’t ruled out the possibility of raising interest rates later this year, albeit modestly. Fed Chair Janet Yellen stated that recent developments in the tightly linked global economy had forced the central bank’s hand in maintaining current rates, despite better performance seen in the U.S. economy that justified a rate hike. She added that from an international perspective, the economic outlook has become “less certain”, essentially slowing down the U.S. economy’s growth regardless of the Federal Reserve’s actions. The prospect of a rate hike has made the dollar increasingly attractive. As a result, the U.S. dollar moved to a defensive position, wobbling against other currencies and falling more than 1% after the announcement. The dollar index, an index comparing the greenback against a basket of its peers, has fallen to a three-week low of 94.360 on Thursday. The index remained relatively unchanged since. The euro gained on the dollar, reaching a three-week high of $1.14415 before moving slightly lower. The British pound also rose to a three-week high against the dollar of $1.5628. The dollar lost some ground against the Japanese yen, fetching 119.9 yen on the dollar. At the same time, U.S. debt yields plunged as the two-year note yield falling back to its normal range a single say after touching a four-year high.
U.S. stocks ended mixed on Thursday. While the initial reaction saw benchmarks gain momentum after the announcement that interest rates would not be raised, the Fed’s cautionary approach and concerns over global economic growth limited the enthusiasm. The Dow Jones Industrial Average closed the day with a 65.21-point (0.39%) decline at 16,674.74. The S&P 500 index fell 5.11 points, or 0.26%, to trade at 1990.2. The Nasdaq Composite bucked the trend with modest 4.71-point gain (0.1%) to 4,893.95.
Commodity prices remained relatively stable after the announcement. Oil prices pulled back 1% to trade at $46.41 a barrel. Regardless, crude oil has gained nearly 5% over the last week. Despite the tendency of a weaker dollar to support commodity prices, it is possible that prices were settling after the recent round of gains after the Federal Reserve’s bearish outlook on global growth dampened demand prospects for crude oil.
Next week holds a number of significant economic data releases. U.S. home sales will be available on Monday, followed by Eurozone consumer confidence on Tuesday. U.S. and Eurozone manufacturing data will be released on Wednesday followed by U.S. durable goods orders and jobless claims. Friday holds the biggest data releases with the release of U.S. GDP data and an interest rate decision from the Bank of Japan.