Market struggles as geopolitics back in focus

Last Friday, the US Dollar continued to retreat against its major counterparts, paring back gains from a bump on Wednesday after the Federal Reserve confirmed it would begin shrinking its $4.5 trillion stockpile of assets. The Fed left interest rates unchanged but forecasted one more interest-rate hike later this year, saying that storm damage will have only a temporary impact on the economy. In their new set of projections, they estimated three quarter-point rate hikes would be appropriate next year, the same number they saw in June 2017, based on the median in the so- called dot plot of interest-rate forecasts. Moreover, Fed Chair Janet Yellen acknowledged that the fall in inflation this year was a bit of a “mystery” but suggested that the Central Bank was on course to raise interest rates again in 2017 nonetheless.

The Japanese Yen recovered broadly against the US Dollar on Friday as well, as tensions between North Korea and the US escalated again this week after Donald Trump’s threat of “total destruction”. North Korean Foreign Minister Ri Yong Ho said that he believes the North could consider a hydrogen bomb test on the Pacific Ocean of an unprecedented scale. The report followed North Korean leader Kim Jong Un’s statement that Pyongyang will consider the “highest level of hard-line countermeasure in history” against the US in response to Trump’s threat to destroy the isolated nation. Meanwhile, a day earlier, the Bank of Japan (BoJ) maintained its policy settings, including its loose pledge to keep buying Bonds so its holdings increase at an annual pace of 80 trillion Yen. Also, surprising markets, a new board member argued against the BoJ’s view that current policy was sufficient to boost inflation to its target.