As expected, the US central bank raised its rates by a quarter point last Wednesday. At 2% – 2.25%, the range of Fed Funds is now the highest it has been in ten years. The Fed is still planning to increase rates a fourth time this year, most likely at the December 19 meeting and three times next year. The press release is relatively similar to the previous one, and the message delivered by the Fed is less aggressive than some feared. For the first time since 2011, the central bank no longer qualifies its monetary policy as accommodative, which means that it no longer believes it is observing a low-interest rate policy to support the economy. Jerome Powell was once again optimistic by insisting on the dynamism of the economy, which should grow faster than expected. The FOMC is counting on growth of 3.1% for this year, up from the 2.8% estimated in June. Mr Powell, who had avoided controversy over tariffs, echoed a “rising chorus of concerns from businesses” as to the effects of the trade war with China on their activity. In particular, he cited concerns about cost increases or the loss of markets. For the first time, the Fed has published its forecasts for 2021. The central bank expects GDP growth of 1.8% and inflation at 2.1%. At 3.9%, the current unemployment rate is close to its lowest in 20 years, and analysts expect September’s figure to be released Friday to be down to 3.8%. The greenback is benefiting not only from the excellent health of the US economy but also from the renewed tension between Italy and the European Union on the 2019 budget. The spread between Italian and German government bonds reached 300 points, and the 10-year Italian bond yield increased to 3.40% before falling back slightly. The greenback thus gained two cents against the single currency at 1.1510, and also two cents against the Swiss franc at 0.9840.

The foreign exchange market was also marked by a new bout of weakness in the pound sterling as the annual Conservative Party Conference ends. Former British Foreign Minister Boris Johnson once again tackled Theresa May’s Brexit strategy, as did Jacob Rees-Mogg, the deputy and leader of the toughest Brexiters. According to Mr Johnson, the Prime Minister’s programme of remaining in the single European market for goods but not for services or the free movement of people would be a “cheat” equal to just pretending to leave the union. For now, the negotiations are, by Ms May’s admission, deadlocked. At the Salzburg summit last month, the EU-27 rejected the Prime Minister’s plan because for them the single market is indivisible. Free movement must be guaranteed for goods, services, capital and persons – all or none. Europe fears that granting too-favourable conditions to the United Kingdom will encourage other EU countries to demand similar conditions for them as well.

The New Zealand Central Bank maintained its interest rates at a record low of 1.75%. Governor Adrian Orr reiterated that he expected the rates to remain unchanged in 2019 and 2020 but did not rule out lowering them again if growth risks remained.

In Australia, growth is strong, the unemployment rate continues to fall, and the industry’s confidence is good. Nevertheless, the Bank of Australia once again kept its rates unchanged at its monetary policy meeting yesterday. The Bank recognises that at some point it will be necessary to readjust the rate policy, but for now, it prefers to remain cautious given China’s slowing growth and while it waits to measure the impact of the trade war between the latter and the United States.

The price of crude remains on the rise. The market fears a drop in supply with the reinstatement of sanctions against Iran. More and more analysts see a $100 barrel not far off in the horizon.

Yesterday the Dow Jones reached a new historical in-session high at 26,824.78 points.

On the agenda are the US employment figures on Friday, which will be the highlight of the coming days.


EUR/USD 1.1580 DOW JONES 26’773.94
USD/CHF 0.9850 SMI 9‘087.32
EUR/CHF 1.1350 BRUT 75.33
USD/RUB 65.47
XAU/USD 1’205.00