In a historic move, the Federal Reserve announced that it was increasing its bellwether rate by 0.25%, as expected. Moreover, the Fed indicated that other increases will follow in 2016 for a total of 100 bps, a faster pace than markets had originally anticipated. Prior to the announcement, pundits expected two rate hikes next year in addition to the one yesterday. In short, the Fed is confident that the U.S. will reach its 2% inflation target and that economic growth is in the cards. This pace of key rate increases opens the door to a rising greenback in 2016.
Stock markets reacted positively to the news a nd the CAD held steady, despite a new weakening in crude oil prices. Yesterday’s Crude Oil Inventories reading from the U.S. Department of Energy showed a more substantial buildup than anticipated. This morning, the greenback is rising against the major currencies and nothing in the short term is pointing to a halt in this trend.
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