Investors accepted the Fed optimism with caution, the US stock markets closed lower

Waiting for more significant increase of rates by the Federal Reserve System (FED) spooked investors, despite the optimistic forecasts for the US economy.
Immediately after the news about the increasing rates the major US stock indexes briefly switched to growth, but then resumed their decline and fell by 0.5-0.8%.
Dow Jones Industrial Average index on the session on December 15 fell by 118.68 points (0.60%) - up to 19,792.53 points. Standard & Poor's 500 was down by 18.44 points (0.81%) - up to 2,253.28 points. Nasdaq Composite lost 27.16 points (0.50%) and amounted to 5436.67 points.
Shares of financial companies fell by 0.6% on the news from the FED.
Oil and gas companies index fell by 2.1% following the decline in WTI oil prices by 3.7%, to $51.04 per barrel.
Stock price of Hertz Global Holdings Inc. dropped by 8.3%. CEO of the company John Teygen resigns from 2 January, he will be replaced by Kathryn Marinello.
Share price of analyst firm Neustar Inc. It jumped by 21% in trading in New York after the announcement of its purchase of a group of investors led by Golden Gate Capital for $2.9 billion.

Fed left interest rates unchanged, but signaled that they may soon rise

Last night the Federal Reserve left US interest rates unchanged, but they said, that the rise in interest rates may happen in the near future.
The Committee of the Federal Reserve was divided. There were three members who had agreed to increase interest rates at this meeting.
In their statement the Commission on Federal Reserve policy stated, that the possibility of an increase in the federal funds rate is getting stronger, but they decided to wait now for another proof of continued progress towards their goal.
The Fed also said, that the risks, which are facing the economy are "roughly balanced".
This is the first time that the Fed is optimistic about the prospects for the economy since last December, when they raised interest rates for the first time since 2006.

How the employment report will affect the dollar?

In anticipation of today's release of the report on employment in the non-farm sector of the US, investors have started to fix profit on their long positions on the dollar. The release from positions has been associated with a weak index of manufacturing activity from the ISM, but today will be a tense day, so some traders also decided to reduce their dollar assets. Officials from the Federal Reserve made it clear, that the decision about raising interest rates in September will largely depend on today's labor market report. If the increase in the number of employees exceeds 200 thousand and the unemployment rate will remain unchanged or fall, expectations about rate hikes in the next month will increase, causing a full-scale dollar strenghtening, wich would bring USD/JPY at the highest level for the month. If the figures are quite high, USD/JPY could even reach 105. However, if the report disappoint, the dollar can meet a nasty correction after rising last month. Stronger than all the dollar would fall to the British pound and the New Zealand dollar - the two currencies, which showed particularly good results in the eve the publication of the report.

Fed's rates raising back on the agenda

In response to the unexpectedly strong data on US labor market, dollar strengthened against most of its competitors. The release can be called truly impressive. In July, the employment rate for payrolls, excluding the agricultural sector, increased by 255 thousand, against the expected growth by 180 thousand. At the same time the previous two indicators were revised upward, bringing the average for the last three months amounted to an impressive 190 thousand.
No less noteworthy was the component of the average hourly and weekly earnings, which J. Yellen gives great importance. The indicator rose to 2.7% y/y, reaching a maximum of more than one year level. The increase in earnings gives hope for acceleration of inflation in the country, which is the second reference point for the Fed in determining the course of monetary policy. Thus, Friday's statistics unit immediately gives two arguments in favor of the fact that this year the regulator can still decide to raise borrowing costs.
As expected, the pair EUR/USD, which was trading near 1.1150, has responded to the report, falling under the mark of 1.11. Reaching the 8-day low at 1.1050, the euro has lost more than one figure. To improve the technical picture EUR/USD is now required to return above the mark of 1.11.

The Bank of England is preparing for the worst

During the last meeting of the Bank of England, the regulator did not disappoint those who counted on the generous incentives. The regulator has reduced the expected rate by 0.25%, while enhancing the program of buying assets to 375 billion up to 435 billion pounds. Surprisingly, it was the decision to buy not only the state, but also corporate bonds. The program will be applied within 6 and 18 months, respectively.
GBP/USD naturally weakened in response to the verdict of the monetary authorities, having lost the level of 1.32. The pair found support on the way to the level of 1.31, and is still under pressure.
In the aspect of longer-term prospects for the British currency, we should pay attention to the attitude of the Central Bank.
Firstly, the Central Bank sharply lowered its economic growth forecast for 2017 to 0.8%, while in May, GDP was expected at 2.3%. Such a grim assessment, combined with the increasing talk about a technical recession, create unfavorable conditions for the pound. Secondly, M. Carney made it clear that he is ready to further easing of policy in the future. It raises the issue of divergence rates of monetary policy of the Bank of England and the Federal Reserve. And although the issue of the next rate hike in the United States is still shrouded in fog, it is important to remember that in the United States we are talking about the normalization of monetary policy, but the British regulator after today's "warm-up" paves the way for further action in this direction.
The closest factor that may affect the expectations of the Fed's rates will manifest itself tomorrow and will have an impact on the dynamics of the GBP/USD and the dollar as a whole. Strong key report on the US labor market will strengthen the position of the US currency across the board. In this scenario, the pressure on the pound will continue and may worsen. Otherwise, we expect a restoration of the pair above the level of 1.32.