Dollar Lower And Fed Projected Slower Rate Path

Dollar weakened overnight while stocks rebounded after Fed kept interest rate unchanged as widely expected. The target rate was held between 0.25% and 0.50% but Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren dissented, preferring a hike. Fed chair Janet Yellen noted in the post meeting press conference that "the case for an increase had strengthened" but the committee "decided for the time being to wait for continued progress toward our objectives." Also, Yellen said that "most participants do expect that one increase in the federal funds rate will be appropriate this year." And, "if we continue on the current course of labor-market improvement and there are no major new risks that develop, and we simply stay on the current course." Markets took the messages as affirmation of a December rate hike and fed fund futures are pricing in 60% chance.

Nonetheless, in the updated economic projections Fed lowered growth forecast for 2016 to 1.8%, down from June's projection of 2.0%. For 2017, growth projections was kept unchanged at 2.0%. But long-term growth rate is projected to be 1.8%, lowered from 2.0%. Unemployment rate for 2016 is projected to be 4.8%, higher that June projection of 4.7%. For 2017, unemployment rate is projected to be 4.6%, unchanged. Core PCE is projected to be 1.7% in 2016, unchanged. For 2017, core PCE is projected to be at 1.8%, down from June's projection of 2.0%. Most importantly, FOMC now projected the federal fund rate to be at 0.6% in 2016, 1.1% in 2017 and 1.9% in 2018. That's notable downward revision from June's projection of 0.9% in 2016, 1.6% in 2017 and 2.4% in 2018. That's seen as the main factor driving Dollar down.

New Zealand dollar is also under some selling pressure after RBNZ kept OCR unchanged at 2.00% as widely expected. The central bank maintained easing bias and noted that "our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range." RBNZ also note that the high exchange rate "continues to place pressure on the export and import-competing sectors," and "a decline in the exchange rate is needed." RBNZ is expected to cut interest rate again in November, when the next quarterly forecasts will be released.

On the data front, UK will release CBI trends total orders today while Eurozone will release consumer confidence. US will release jobless claims, house price index, existing home sales and leading indicators.