Federal Reserve opts to keep interest rates unchanged

Enrique Díaz-Álvarez18/Sep/2015Currency Updates

All attention on Thursday evening turned to the Federal Open Market Committee (FOMC), which was provided with its first realistic opportunity to raise interest rates since 2006. Strong domestic economic performance in the US meant that economists and analysts were very much split 50/50 over whether the Fed would hike.

In the end, the FOMC opted to keep rates unchanged at their current 0.25% level, with just one committee member, Jeffrey Lacker, voting to increase rates in September. Unsurprisingly, the Dollar declined sharply immediately after the decision, down against both the Euro and Sterling, with strong losses versus the majority of emerging market currencies.

While the Fed acknowledged the domestic economy was healthy and performing well, downside risks from abroad continue to provide a drag on the economy. Signs of a sharp slowdown outside of the US, namely in China, have raised concerns about an immediate rate hike. The Fed has clearly become more concerned about overseas risks than we had anticipated and now appears to be looking more closely at the stock market; something that it hasn’t done for years. Crucially the central bank also cited undesirably low inflation.

However, critically, the Fed’s infamous “dot plot”, which represents where each committee member expects interest rates to be in the near term future, shows that thirteen of the seventeen FOMC members still expect a rate hike to occur in 2015. A hike this year is therefore certainly still on the cards.

Given this, and considering that at the press conference Janet Yellen kept the door open to a rate hike next month by stating that it was very much a “live”, we now see a 50/50 chance that the Fed will hike at either the October or December meeting. This forecast is conditional on no negative surprises abroad or in the stock markets, such as last month’s ‘Black Monday’.


Sterling was mostly unchanged during the London session, however finished 0.7% higher against the Dollar for the day following the Fed’s decision to keep rates unchanged.

Announcements in the UK were almost entirely overlooked yesterday. However, retail sales data is worth noting, which earlier in the day continued to perform strongly, despite undershooting expectations. Sales in UK retail stores rose by 0.2% in August from a month previous, 3.7% higher than this time last year. This marked the slowest year-on-year growth since September 2014 and adds further evidence to suggest that the UK economy may be set for a moderate slowdown in the third quarter.

A lack of data releases in the UK today means that almost all Sterling volatility will be centred on fall-out from last nights Fed decision.


The Euro was little changed in the run up to the FOMC announcement, although rallied hard by 1% versus Greenback last night.

In terms of economic indicator data in the Euro-area yesterday, construction output increased in July by 1.8% on an annualised basis, its largest increase January. Meanwhile, the trade balance in Italy swelled to a record high, boosted by a weaker Euro. Earlier, the European Central Bank released its latest economic bulletin, although there was little new information and the Euro was unaffected as a result.

Today will be a similarly quiet end to the week for the single, with current account data at 9am the only data release of note. All Euro movement will therefore hinge on reaction to last night’s Fed decision.


There were a number of second-tier announcements before the Fed interest rate decision yesterday. Initial jobless claims performed impressively once again. Claims decreased from 275,000 to a two-month low 264,000 for the week ending 12th September according to the Labor Department. This was the 28th straight week that the reading was below the benchmark 300,000 level. Elsewhere, the Philly Fed manufacturing survey was especially disappointing, falling from 8.3 to -6.0.

All focus for the US Dollar today will be on fallout from Thursday’s Fed announcement. We expect the Dollar to remain under pressure on Friday.

Rest of the world

The Swiss National Bank kept its benchmark interest rate unchanged at -0.75% on Thursday morning. The SNB continued to claim the Franc is “significantly overvalued”, and that the central bank would intervene in the foreign exchange market if required.



Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.