The US Federal Reserve has decided to keep interest rates at between 0.25% and 0.5%.The central bank said the labour market was strengthening, but it was still looking for inflation to reach its 2% target and expected the US economy to continue to “expand at a moderate pace”. The US central bank last raised rates in December, saying it expected to raise rates four times in 2016. But that view has changed to twice this year.
Hence after hearing fed speech we conclude that it more like a Dovish tone compared to Hawkish before few months. The reasons for being dovish are that other world economies are slowing and adapting negative interest rate on the other side US’s inflation came to three years high i.e 2.3%, well above the Fed’s target. Inflation and the job market have been the two key factors in the Fed’s decision to raise rates. The US labour market has been improving. The unemployment rate fell below 5% in January, which is a further sign of a strengthening economy.
What it all mean for the global markets? Soon after the Fed’s statement US dollar plunge near its crucial resistance of $1.13 against the Euro on the other side Bullions climbed high because of an inverse relation with the USD and delaying in rate hike. Major world market gave a mixed clue while on the other side Nifty climbed again above 7550 levels. We assume market soon discount the rate hike decision which is pending in the month of June 2016.
Hence for the coming few months we assume Global markets might remain in a tight range with a mild positive bias and post that we assume correction in the markets and in an INR. INR might rise till 66 levels against the USD and post that we assume fall till 68.70 levels and Nifty might correct till 7340-7200 levels. Gold would act strong till $1280-90 levels above this may rise till $1320. But rising rate news might discount the Gold price till $1210-1180 in the coming months.
