What you need to know on Thursday, December 16:
Markets participants held their breath ahead of the US Federal Reserve monetary policy decision, with the greenback firming up but without breaking any relevant level. The US central bank confirmed it will accelerate the pace of tapering, starting in January 2022. As expected, the central bank decided to leave rates on hold, and trim bond-buying by $30 billion per month.
US Federal Reserve Chair Jerome Powell noted that economic activity is on tact to expand at a robust pace this year, adding, however, that the Omicron variant poses risks to the outlook. On employment, he said that all officials think the labor market will reach maximum employment next year. About inflation, the focus remains on bottlenecks and supply constraints, although it is expected to decline closer to 2% by the end of 2022. As the presser developed, stocks found the strength to turn green, pushing the dollar back down.
The American dollar initially rallied with the headline, but turned south within Chair Powell’s press conference, ending the day lower against most of its major rivals. Powell noted that it would not hike rates before an end to the tapering, cooling down speculative expectations. Stocks rallied on relief, pressuring the American currency.
The EUR/USD approached the 1.1300 level but remains below it ahead of the ECB meeting. The European Central Bank will announce its decision on monetary policy and is widely anticipated to maintain its current policy. In the previous week, there were market talks pointing out a possible extension of the financial support, despite President Christine Lagarde having repeated the Pandemic Emergency Purchase Program will end in March 2022.
The GBP/USD peaked at 1.3282 and currently trades at 1.3260. The high was reached following the release of UK inflation data, which jumped to a record of 5.1% YoY in November.
The Australian dollar appreciated the most, now trading around 0.7170 vs the dollar, and heading into the release of Australian employment data. USD/CAD retreated to 1.2840.
Gold posted a fresh multi-month low of 1,752, recovering afterwards to settle at around 1,778. Crude oil prices advanced alongside stocks, with WTI now trading at around $71.50 a barrel.
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