Dollar surged overnight as Fed's latest economic projection suggested faster rate hike in 2017. Fed fund futures are now pricing in 78.5% chance of another hike by June to 1.00%. Dollar index jumped to as high as 102.62 so far today and the break of 102.05 resistance confirmed up trend resumption. EUR/USD will be a major focus before weekly close as it's set to take on key medium term support level at 1.0461. Treasury yield followed the trend too with 10 year yield extending recent rally to close at 2.525. Gold is under renewed pressure on Dollar strength, dipping to as low as 1136.4 so far. However, stocks responded negatively even though Fed revised up GDP forecasts. DJIA failed to touch 20000 handle and closed lower by -118.68 pts, or -0.6%, at 19792.53. Focus will now turn to SNB and BoE rate decisions. But both central banks are expected to keep policies unchanged. These could be non-events.
The Fed increased the policy rate by 25 bps for the first time in a year, along with a more hawkish statement, in December. the FOMC acknowledged that the employment market has continued to "strengthen", with "solid" job gains and "decline" in the unemployment rate seen in recent months. It noted that economic activity has expanded at "a moderate pace since mid-year". Household spending has risen "moderately" but business fixed investment has remained "soft". Inflation has "increased since earlier this year", compared with November statement's "increased somewhat", but is still below the Committee's 2% longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports". It also noted that market-based measures of inflation compensation have "moved up considerably", compared with November statement's "moved up", but still are low.
The market focus has turned, however, to the latest "dot plot" which indicated that the members expect three hikes in 2017, up from two previously. Fed Chair Janet Yellen attempted to downplay the median projections of three rate hike in 2017, suggesting that the change was "modest" and only represented a small shift in the thinking of several committee members. The forward guidance in the statement also reaffirmed that the current "economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate". Yellen at the press conference also warned of the "considerable uncertainty" regarding the fiscal policy, though she added it's too early to gauge its impact on the monetary stance. More in Fed Raised Rates by +25 Bps, Expects Three Hikes In 2017.
On the data front, Australia employment grew 39.1k in November, above expectation of 17.6k. Unemployment rate, however, rose 0.1% to 5.7%. Consumer inflation expectation rose 3.4% in December. New Zealand business manufacturing index dropped to 54.4 in November. Japan PMI manufacturing rose to 51.9 in December. Eurozone PMIs and UK retail sales will be the focus in European session along with BoE and SNB. A long list of economic data will be released from US including CPI, current account balance, Empire state manufacturing, Philly Fed manufacturing, jobless claims and NAHD housing market index.