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The Fed, Wall Street, currencies in focus

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Overnight on Wall Street, the major indexes hit new closing lows for 2018. The Dow Jones Industrial Average dropped 351.98 points to close at 23,323.66 while the S&P 500 shed 1.5 percent to end the trading day at 2,506.96. The Nasdaq Composite fell 2.1 percent to close at 6,636.83.

That came on the back of the Fed raising its benchmark interest rate by a quarter point to a target range between 2.25 to 2.5 percent, in a widely anticipated move.

The move marked the fourth increase this year by the U.S. central bank and the ninth since it began normalizing rates in December 2015. It came despite President Donald Trump’s tweets against rate hikes. On Monday, he said “it is incredible” that “the Fed is even considering yet another interest rate hike” amid the turmoil outside of the U.S.

Officials, however, now project two hikes next year, which is a reduction but still ahead of current market pricing of no additional moves next year.

The language in the post-meeting statement was also not entirely dovish, or easy on its outlook for rates. The committee continued to include a statement that more rate hikes would be appropriate, though it did soften the tone a bit.

“What was a bit surprising is that the post (meeting) statement says that ‘some further gradual increases (my emphasis) in the target range for the federal fund rate will be consistent….”. The expectation here was that all reference to ‘gradual’ could be dropped, significantly a formal end to the Fed being on ‘auto-pilot’ with respect to its rate rise cycle to date, as long as the economy and inflation were broadly performing as expected,” Ray Attrill, head of foreign exchange strategy at National Australia Bank, said in a morning note.

“We’d nevertheless judge that the Fed has now moved into fairly full-blown ‘data dependency mode,” Attrill said.

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