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European equities are set to open flat as traders try to decipher last nights Fed moves. As expected the plug was pulled on QE. However, there was no additional sweetener to keep markets happy, just a reiteration of the “considerable time” phrase but putting the bulls on a slightly awkward footing was the acknowledgement of improvements in the labour market. Currency traders certainly thought it was a hawkish signal with significant strength in the dollar across the board but equities traders are still to make up their minds up about it.
As widely anticipated, the Federal Reserve confirmed it ended its asset purchasing program showing confidence the US economy is strong enough to stand on its own feet. Having rallied earlier on, the Dow Jones dropped sharply but the commitment to keep interest rates low for a ‘considerable time’ spurred a rebound towards the close. The Dow Jones finished unchanged at 16,987 as investor were still trying to figure out if this time around the US economy has enough velocity to self sustain.
Confident the US labour market is strong enough, the Fed also downplayed risk of a drop in inflation with the odds now increasing the rates will be hiked by October next year. That supported the greenback and hurt the euro on a relative basis with the EUR/USD pair resuming its slump and closing 104 pips to 1.2632.
Early strength for the euro versus the dollar drove the crude prices higher yesterday. However, a sudden plunge after the FOMC announcement together with a slide in stock markets pushed oil prices back down but due to initial gains the WTI managed to end the day 40 cents up at $81.55 a barrel.
Not a good day for gold bugs as the bond buying came to an end. Demand for alternative assets was hit which in turn triggered a selloff in the precious metal. As a result gold prices lost $16.2 to $1212.
Marius is a Dealer at Capital Spreads. His involvement with CFDs and spread betting started in 2008 after graduating from London Metropolitan University with a MSc in Finance. He contributes to the Daily Comment by providing a snapshot of the FX, indices and commodity markets (oil and gold).
Jonathan is a dealer at Capital Spreads. Having started his career in the city trading interest rate and bond derivatives in 2005, he then entered the spread betting and CFD industry in 2007 by joining the dealing desk at City Credit Capital. After successfully managing multiple asset risk books across the European, US and Asian time zones throughout the height of the financial crisis, he then took that experience to Capital Spreads in 2010.
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