There was no surprise in last night’s decision to hold rates by the Federal Reserve, however there appears to be some contrasting reactions to the statement that accompanied the decision.

While crude oil continued to push higher as the US dollar weakened somewhat the accompanying stock market reaction was one of disappointment and a sharp move lower as equity markets decoupled from the oil price.

As with anything where markets are concerned investors appear to have reacted more to what was removed from the statement than to what was actually in it, and interpretations varied on what the minutes were telling the markets, depending on who was asked. Maybe that was the intention but what doesn’t seem in any doubt is the Fed is less sure of the economic environment than it was a month ago and therefore that should be interpreted as dovish, as no self-respecting central banker hikes rates in the face of uncertainty.

There is no doubt that the economic outlook has become a little bit gloomier since December so a slightly more cautious statement was to be expected, and that’s precisely what we got. There was an acknowledgement that growth had slowed towards the end of last year, a fact that is likely to be confirmed on Friday, with the latest Q4 GDP number.

This shouldn’t be a surprise and suggests that last night’s initial stock market sell-off could well be an over-reaction, or maybe a reaction to the possibility that the Fed wasn’t dovish enough?

The other main differences in the statement came with the removal of a line about policymakers being reasonably confident that inflation will rise to 2% in the medium term, as well as a line about economic risks being balanced, which would appear to be an acknowledgment of recent falls in oil prices and the deterioration in the economic outlook. Given recent events these changes are merely an acknowledgement of the facts, and suggest that a March hike is unlikely, which again wouldn’t be a surprise.

So while the US dollar reaction was broadly neutral vis-à-vis currencies, against commodities it was more negative with oil prices pushing higher to their highest levels in over a week, while gold and copper prices also drifted higher.

As regards to today after a strongly positive session yesterday markets in Europe will look to focus on last night’s events with a slightly lower open with the main focus this morning turning back to the UK and the first reading of UK Q4 GDP, as well as the latest German CPI inflation numbers.

The pound has struggled in recent weeks, dropping to multi year lows against the US dollar last week, and failing to benefit from any uplift despite a fairly dovish Fed statement last night.

In recent weeks there has been a worry that Q4 GDP could come in slightly weaker than that in Q3 which saw a downward adjustment to 0.4% on its final reading

Initial expectations are for a reading of 0.5%, which would be in line with recent PMI data, though there is a concern about recent weaker than expected manufacturing data that could well act as a drag.

As far as German CPI is concerned a jump from 0.2% to 0.4% is expected for the year on year numbers for January, which is likely to spice up things at the ECB when it comes to deliberate on the next course of action when it comes to a potential easing of policy. On a monthly basis a decline of 1% is expected, largely as a result of lower energy prices.

Later this afternoon the focus returns to the US and the latest durable goods numbers for December. This particular data item has been disappointing throughout 2015, with US consumers not shelling out for big ticket white goods, or flat screen TV’s, and other high value items. Expectations are for a decline of 0.1% for December, which would round off a decline of over 1% year on year.

Weekly jobless claims are expected to slip back to 281k after a sharp jump to 293k the previous week.

CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.