'Santa rout' as Fed fails to cheer markets

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The rupee weakened on Thursday tracking Asian peers after the US Federal Reserve's rate statement on Wednesday which sounded "less dovish" than expected, traders said.

Meeting for the last time this year, U.S. central bank policymakers increased the key interest rate for a fourth time in 2018. Calling time on further tightening would send a more worrying message than proceeding more cautiously with further rate increases.

At a news conference after the Fed's announcement, Powell said Trump's tweets and statements would have no bearing on the central bank's policymaking.

USA personal income and spending data are due Friday, along with a gauge of inflation.

The S&P 500 index was down about 1.6 per cent in late afternoon trading.

Bond prices rose, sending yields lower.

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Markets in Asia reacted negatively to the interest rates hike from the United States (US) Federal Reserve (Fed) on Wednesday following Wall Street's losses, as investors had been hoping for a less aggressive fiscal approach amid the global growth slowdown.

The greatest influence on the dynamics of EUR/USD and the entire dependent market as a whole was provided by Powell's comments and forecasts for the next steps of monetary policy. Given that the latest forecast from the International Monetary Fund shows the U.S. economy expanding 2.5 per cent next year, the time frame for a recession that the stock market is now pricing in is far too bleak.

Wednesday's quarter-point hike in the U.S. came after Trump repeatedly demanded on Twitter the bank hold rates, in what was regarded as the most public assault on the Fed's independence in decades.

Mnuchin said the market overreacted, with computerized program trading taking over and driving stock prices down further.

Interest rate futures show traders are now betting the Fed won't raise rates at all next year. The president has complained that the moves are threatening the economy. Relative to their size, they also tend to carry more debt than larger companies, which could be a problem in a slower economy with higher interest rates.

It comes after the US President on Tuesday warned the Fed against making "yet another mistake" in raising rates, urging it instead to "feel the market".

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At the same time, Powell tried to make clear the Fed would not blindly pursue its effort to normalize borrowing costs at the risk of inadvertently triggering a recession.

The S&P 500 fell 39 points, or 1.6 per cent, to 2,467.

Looking to learn more about how central banks impact FX markets? Wednesday's increase from 2.25% to 2.5% lifted the benchmark rate to its highest since the financial crisis of 2008.

The Federal Open Market Committee raised its main rate by 25-bps to a range of 2.25-2.50%, as was widely expected (72% probability according to Fed funds futures), but made a number of tweaks to its GDP and inflation forecasts, and thus, to its glide path of interest rates (known as the "dot plot") moving forward.

Markets are also concerned about the ongoing trade dispute between the USA and China, which has lasted most of this year and shows few signs of easing, and forecasts for a dip in economic activity next year.

But estimates released on Wednesday show most members expect two rate increases in 2019 - not three, as previously forecast.

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Oil prices slid just more than 4 per cent overnight, bringing Brent's losses since its October top to 37 per cent. "Job gains have been strong, on average, in recent months, and the unemployment rate has remained low".