Last night's much awaited FOMC rate decision to leave its policy rate target range unchanged at 0-0.25% will continue to resound around the markets. However, while market expectations were confirmed, a majority of FOMC members still appear to anticipate an increase before the end of the year. The initial response yesterday saw declines in both the US dollar and bond yields.
However, this positive message was outweighed by current concerns about global economic weakness, falling energy prices, the stronger US dollar and financial market turbulence. These factors were highlighted in both the accompanying statement and Janet Yellen's press conference.
While the USD is at risk of follow through selling in the near term, there is little reason to believe we should move out of recent ranges. This should see volatility reduce and while the natural reaction is to move to carry trades in such periods, the higher yielding currencies are still susceptible to risks around China. On the slip side, the GBP should benefit from the FOMC remaining on hold in the short term which can see GBPUSD grind up towards the 1.5750-1.5900 range highs on the back of strong wage data earlier in the week, but probably would remain that range as we think rate hike speculations are likely to loom further in the weeks to come.


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