Fed raises rates, unveils balance sheet cuts in sign of confidence

"They have taken a cautious approach to balance sheet normalisation, but they have begun it and it's definitely a tightening of policy. That is the main reason why the dollar is remaining supported for now", said Manuel Oliveri, currency strategist at Credit Agricole in London. Fed leaders suggested they still expect to raise rates again later in the year.

Growth in Philadelphia-area manufacturing activity slowed in the month of June, according to a report released by the Federal Reserve Bank of Philadelphia.

The U.S. central bank also gave a first clear outline of plans to shed its $4.5 trillion bond portfolio built up in three rounds of quantitative easing stimulus. Year-on-year, the New Zealand economy grew 2.5%, disappointing forecasts for a 2.7% growth rate.

Federal Reserve head Janet Yellen justified the decision by highlighting the resilience of the U.S. economy, which has been buoyed by a robust labour market.

They said they expected Fed policymakers to raise interest rates one more time by the end of 2017 and then three times in 2018.

"We could put this into effect relatively soon", Fed Chair Janet Yellen said at a news conference after the FOMC meeting on Wednesday about paring the Fed's bond holdings. The Australian dollar edged down to 0.7583 dollar from 0.7585 dollar. The rest of the surveyed experts predicted a rate hike by 25 basis points to 1-1.25 percent. The hawkish tone of the central bank has traders concerned, as USA economic data has been weak of late.

The yield on 10-year U.S. Treasury yields rose as much as 4 basis points from a seven-month low of 2.10 percent hit after weaker-than-expected U.S. data on Wednesday.

The updated Summary of Economic Projections was largely in line with expectations containing a few mild surprises, mainly an upward revision in 2017 real GDP forecast to 2.2 percent from 2.1 percent and a significant downward reassessment in 2017 PCE inflation projection to 1.6 percent from 1.9 percent.

"What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis", Yellen said.

HONG KONG: The Hong Kong Monetary Authority raised interest rates after the Fed's move, to help keep the territory's currency at a stable rate against the US dollar.

Market participants' focus will be on signals on the frequency of further hikes and how the Fed plans to unwind its huge Treasury bond stockpile over the years ahead.

The Citi US Economic Surprise Index has started to fall off its peak and is now close to the trough seen at the beginning of a year ago, which suggests recent economic figures have basically lagged behind market expectations.

  • Zachary Reyes