Impact on interest rate changes in the US market has been felt in the European market. The Federal Reserve on Wednesday at 2 pm announced a rise in interest rates. This decision came after a meeting with the Fed officials based on US economic robustness. The decision has received an overwhelming response from the global market. Traders in the bond market felt the impact when short-term bonds sold more than long-term bonds. According to Reuters in Tokyo, the dollar fell back alongside the Yen on Thursday where it topped for three weeks. This was consequent to the Fed’s decision that is still forecasting another two more increases within the same year. The US is a big economy. This means that any changes made in the market affects all the trading partners.
Traders were in the process of booking profits as the rates changed. Policy makers in the European Central Bank (ECB), on Thursday, met to discuss the termination of a 2.55 trillion-euro bond-procurement program. Before Wednesday, the dollar traded at Y110.85 but later lost touch scoring a Y110.20 trade value after the imposed policy by the Fed. Some currencies almost recorded a flat amount of $1.1797 from a previous value of $1.1725. However, Fed’s decision seems to have been made in favour of the Yen after hitting a $1.1840 high last week.
Investors responded to the new policies as well. Stefan Kreuzkamp, the Deutsche Bank chief investment officer, termed US economic strategies as reassuringly tedious in a progressively uncertain world. There are ongoing frictions between the US and her trade allies that have led to trade wars with its partner. However, prospects for US economic growth is expected throughout the coming year. Reuter’s reports that it was widely expected what the Fed decided augmenting the fed-fund percentage by a quarter between 1.75% and 2%.
By ending its pledge to keep rates low to facilitate economic growth, it signaled above-target toleration of inflation through 2020. After the announcement, the market’s initial response to the new policies washed-out fast. In the European Union, the attention has now been moved to the ECB’s strategy evaluation. Following the effect on short-term and long-term bonds purchase in the market, some traders speculate that ECB will shift bond purchases in 2018. In their opinion, some think the policymakers may refrain from beckoning variations to ECB’s stimulus program. The idea follows Italy’s political dilemma in addition to a current series of substandard data in the euro sector. There is a possibility that developing market monies may face pressure, especially those with great peripheral sponsoring needs that are vulnerable to intensifying dollar finance costs.