A NEW ERA BEGINS AT THE FED

On Wednesday, Fed Chair Janet Yellen concluded her final meeting as the Fed chair. She leaves a happy person.

Under her tenure, the economy has added more than 10 million jobs, the unemployment rate has fallen to a 17-year low and inflation has been contained below the 2% target.

In addition, she led the Fed to become the first major central bank to end the QE and start normalizing interest rates. Further, her guidance policies led to a reduced volatility towards Fed’s meetings.

In her final meeting, chair Yellen left the interest rates unchanged as traders expected. In the statement, the committee believed that inflation will peak up which could lead to three more rate hikes this year. Traders expect the Fed to raise rates in their March, June, and December meeting.

After the statement, the currencies were little changed and the Dow gave up its gain before ending the day up by 0.33%. On the other hand, the yields on the 10-year Treasury bonds climbed for a short time and then reversed to end the day down 2.722%.

Yellen’s successor, Jerome Powell will assume the position on Monday next week.

Today, the dollar has struggled among the major currencies with the dollar index falling by 8 basis points. Against the Euro and the pound, the dollar has lost 27 and 16 bps respectively.

Today, the market received the manufacturing data from China, Germany, and the UK. The Chinese data showed that the manufacturing index was unchanged at 51.8. Germany’s PMI of 61.1 missed analysts’ estimates of 61.2 while that of the UK of 55.3 missed the analysts’ estimates of 56.5. At 3PM (GMT), we will receive the ISM manufacturing data from the United States. Traders expect the data to show a PMI of 58.8 down from 59.3.

EUR/USD

This week, the EUR/USD pair has struggled to find direction following the mixed statements from Trump and Mnuchin in Davos last week. The pair, which is trading above the 50 and 15-day moving average, is currently trying to reach the weekly high of 1.2473.

GBP/USD

In January, the cable rose from a low of 1.3466 to a high of 1.4343. Traders interpreted this as a weakening dollar instead of a strengthening euro. In the month, inflation in the UK rose by 3.0% compared to the 3.1% in the previous month.

This week, the pair has recovered from last week’s losses. It has moved up from a low of 1.3980 to a weekly high of 1.3980 forming a 40 degrees trend line. An angle between 30 and 45 indicates the formation of a strong trend, which means the pair, could continue going up.

USD/ZAR

In January, the South African rand had one of its best performances against the dollar following Ramaphosa’s win against Dhlamini Zuma who was backed by her former president, Jacob Zuma. Investors took this as a positive sign for a country that has seen its economy deteriorate under Zuma. This week, the pair seems to have established a floor at the 11.78 level.