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Video for March 18th, 2008 (4 min 18 sec): FOMC Digs in its Heels, Cutting Rates by "Only" 75 Basis Points. 

Before we take a look at today's FOMC announcement let's first examine today's earlier releases.

UK Overall Consumer Inflation Up, Core Rate Cools

The UK's annual inflation picked up in February, rising to 2.5%, the highest since May of last year. Annual core inflation however, edged down to 1.2%. This presents a mixed bag for the Bank of England, as short term inflation is being propped up by higher energy and food prices, while underlying inflation may be subsiding.

Retail prices in the UK were steady at an annual pace of 4.1%, with the monthly measure climbing back to positive territory and meeting forecasts.

US Producer Inflation Sees Elevated Core Rate

The US saw inflation to producers subside in February to a monthly rate of 0.3%. Core inflation however, doubled expectations and jumped to 0.5%. The annual rates showed a similar breakdown.

US Housing Starts Stable, Building Permits Slip Again

The annual pace of housing starts in the US was close to its upwardly revised total from January, hovering near 1.07 million units. Building permits, an indicator of future construction sagged yet again, plunging 7.8% to a 16 year low of 978,000 units.

CAN Consumer Inflation Shows Lower Higher Core Readings

Canada's inflation data showed mixed results. Annual inflation fell below 2% for the first time in 6 months, registering only 1.8%. Cooler inflation leaves room for the Bank of Canada to lower rates again to bolster the economy when it meets again in April. The central bank has already cut rates in 3 consecutive meetings bringing its benchmark rate down from 4.5% to 3.5%.

Canada's core inflation however picked up, rising 0.5% on the month, and beating expectations. Annual core inflation edged up from 1.4% to 1.5% while economists had forecasted a fall to 1.2%.

US Fed Lowers Rates 75 Basis Points

Finally, the Federal Open Market Committee decided to cut the benchmark interest rate by 75 basis points today to 2.25%. After the turmoil in the markets recently, some corners - especially those on Wall Street, were craving a 100 basis point cut. There were two dissenting votes as worries about inflation prompted the two members to call for a "less aggressive action."

GBP/USD - Pound Pares Yesterday's Losses

 

The Pound-Dollar pair reversed yesterday's losses overnight, rising 300 pips prior to the FOMC announcement. Most of the gains came after the UK's inflation data. The Fed announced that inflation has reemerged to the forefront of its worries. This was a reason the committee did not go with the full 1.0% cut. The market is reacting favorably to the dollar due to the new shift in focus. The Pound had bounced back against the yen as well.

USD/JPY - Dollar Strengthens vs Yen on Strong Stock Gains

 

Taking a look at the Dollar-Yen, we see that investors were more confident today as the Dow Jones index was up 300 pips, bolstered by better than expected earnings reports from Goldman Sachs and Lehman Brothers. The news boosted the pair about 180 pips in favor of the Dollar. The Dollar clawed back most of its losses from yesterday and stayed near its high following the FOMC release.

EUR/USD - Dollar Gains After Fed Announcement

 

The Euro-Dollar pair rose from its open, and was trading near 1.58 prior to the FOMC announcement. Following the move by the Fed, Dollar bulls took control pushing the pair down near 1.57, 200 pips away from yesterday's record high.

USD/CAD - Loonie Gains for First Time in 3 Sessions

 

The US Dollar-Canadian Dollar pair fell during the session, moving in the Loonie's favor for the first time in 3 sessions. Trading was choppy however, with the pair trading near .9920 45 minutes after the FOMC decision.

AUD/USD - Aussie Boosted by Hawkish Minutes

*

In our final currency pair, the Aussie-Dollar rose today, paring some of its losses from yesterday. The Reserve Bank of Australia released its minutes which showed the bank was still hawkish in its opinion of inflation, boosting the Aussie about 100 pips from its low. The Fed announcement had a small impact on the pair.

*The video labels this chart as AUD/CAD in error.

Upcoming Releases

The fundamental docket is relatively light tomorrow, with the main releases being the UK employment report, bank of England minutes, and the Euro-zone trade balance.