At last, after what seems like the longest tap dance in history the Federal Reserve finally delivered what it promised it would do at the end of 2014, and finally delivered on its promise to raise rates in 2015, breaking seven continuous years of rates at the zero bound. The target range of the Fed Funds rate was raised as expected by 25 basis points to 0.25%-0.50%, but even so it has proven to be a tortuous process, and while they really left themselves no other choice given the heavy briefing beforehand Fed chief Janet Yellen made it quite plain that she was in no rush to follow up with another hike anytime soon, even if the dot plots make it plain that rates are expected to rise close to 1.5% by the end of next year, implying that rates could rise another four times next year. This seems highly optimistic and is unlikely to happen, given that the dot plots a year ago predicted we’d see at least three rate rises this year. While the lack of dissent amongst policymakers was surprising language like “inflation continues to run below target” and “net exports have been soft” with plenty of adjectives like “prudent” and “gradual” reinforced the message that there would be no implied set path to any further moves. The justification of the move was that good progress had been made in the labour market, thus fulfilling part of their dual mandate, but there was an acknowledgement that while inflation was falling well below target there was confidence that it would move back to its target of 2% in the medium term. How this confidence about inflation is founded is anyone’s guess given the continued declines in energy prices, but policymakers continue to insist that these “transitory” effects will soon pass, and that central bank policy will eventually bring inflation back to target. The biggest problem the Fed has now is the fear that they have lit a bigger fire under the US dollar at a time when the economic environment remains much less certain than it was in September when they stepped back from the brink. For a start the US manufacturing sector slipped into contraction in November, hurt in part by the strength of the greenback, which means that Fed policymakers must seem fairly confident that this slowdown is merely temporary. Let’s hope they are right as the last time manufacturing was this weak the Fed started its first QE Program, and given that oil prices still show no signs of bottoming out, a temporary slowdown remains a fairy optimistic call, which for a central bank that is data dependant is somewhat of a leap in the dark. As markets absorb last night’s events in Washington attention switches back to the UK economy today and the possible timing of a UK rate rise, now that the Fed has moved, and in the process giving Bank of England Mark Carney the opportunity to perform another about turn in the New Year, perhaps, when things come into “sharper focus”. Yesterday’s economic data showed that the unemployment rate continued to fall, coming in at 5.2% with youth unemployment also slipping back. The only cloud was a smaller than expected rise in average earnings data which showed a rise of 2%, below expectations of a rise of 2.3%. Looking at this on the positive side this is still well above the latest inflation numbers which ticked up in November to 0.1% so wages are still rising faster than the cost of living on most levels with the exception of housing. Today’s retail sales numbers for November are likely to show little bit of a rebound from the 0.6% decline seen in October. A rise of 0.6% is expected despite all the hype surrounding “Black Friday” with UK consumers adopting a slightly more detached view on the so called bargains available in the shops at the end of November. With fuel prices continuing to fall at the pumps the amount of money available for discretionary spending looks set to increase as we head into year-end which suggests that we could well see the UK consumer picking up the slack after a slow October, though the slowdown in October does need to be viewed through the prism of a spectacularly good September. EURUSD – another failure at the 100 and 200 day MA at 1.1050/60 has seen the euro slip back and could well fall back towards 1.0820. Given the recent bullish weekly reversal the upside remains the vulnerable side towards 1.1120 and 1.1200. GBPUSD – having failed to overcome the 50 day MA the pound has slipped back quite sharply and has slid back below the 1.5000 level. This undermines the bias towards further gains towards the 1.5300 area and the 200 day MA. A fall below 1.4880 would prompt the possibility of further losses. EURGBP – the 0.7300 area which is the 61.8% retracement of the entire down move from the October peaks at 0.7495, and the November lows, remains a key resistance while the 0.7200 level and the 200 day MA is a key support. We need a break either way to determine the next move here but the bias could be lower. USDJPY – having broken above the 122.20 area we could be set for move back towards 124.00. A move back below 122.00 retargets the 120.00 area. 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. 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