Take it from the Fed: Low interest rates aren't going anywhere

Andrew Cummings
September 18, 2020

European markets are set to follow their counterparts in Asia and the US lower as traders absorbed the Federal Reserve's promise to keep rates low over the next couple of years. Also Thursday, the Japanese and British central banks left their interest rates unchanged and gave no sign of more imminent stimulus.

Members of the Federal Open Market Committee suggested the USA over night rate might remain anchored to the zero-bound through 2023 as the reserve bank attempts to stimulate inflation.

Andrew Brenner, head of worldwide fixed income at NatAlliance said the Fed was "nowhere near as dovish as many had thought" with no extension of asset purchases, no increase in buying of longer-end bonds and no yield curve capping, which alongside a view that the Fed will let inflation run, pushed up longer-end yields and hurt equities, he said. The Hang Seng in Hong Kong retreated 1.6% to 24,340.85.

The Kospi in Seoul shed 0.9 percent to 2,414.03 while Sydney's S&P-ASX 200 declined 0.9 percent to 5,905.10.

India's Sensex opened down 0.2% at 39,210.14.

The kiwi traded 0.3% below at $0.6714, after data showed New Zealand fell into its deepest slump on record as the coronavirus outbreak paralysed business activity.

The central bank also noted that the path of the economy will depend significantly on the course of the virus.

The safe-haven yen rose to a seven-week high against the dollar and a 1-1/2-month peak versus the euro, amid another batch of generally weak USA data and overall uncertainty about the economic outlook, backing the Federal Reserve's concern on Wednesday about the pace of recovery.

U.S. investors are counting on Congress for a new support package after additional unemployment benefits that help to support consumer spending expired, but legislators are deadlocked on its possible size.

In his closely-watched speech on Wednesday, Fed Chair Jerome Powell did not downplay the growth of the economy, but signaled that the improved outlook does not mean that the country does not need more fiscal support to deal with the aftermath of the pandemic. The Fed projected an unemployment rate at the end of the year of 7.6% instead of the 9.3% projected in June. He said the economic recovery may take longer than people would like, and reiterated calls for Congress to spend more money to support households and businesses.

In energy markets, benchmark USA crude oil for October delivery lost 63 cents to $39.54 per barrel in electronic trading on the New York Mercantile Exchange.

The dollar index, a measure of its value against six major rivals, was last little changed at 93.12 =USD , but hit a one-week high earlier in the session. The euro retreated to $1.1765 from $1.1801. Brent crude oil for November delivery gained 21 cents to $42.43 per barrel in London.

The euro dropped 0.4% to $1.1767 while the Australian dollar lost 0.4% to $0.7278, having erased earlier gains made after stronger-than-expected local jobs data.

In afternoon trading, the dollar fell 0.3% against the yen to 104.69 yen, after sliding to a seven-week low of 104.52.

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