103041 Dollar rallies on Fed rate move Financial Markets The dollar advanced versus most of its peers on Thursday as investors welcomed the Fed “lift-off” by piling into the greenback. The dollar index, which measures the greenback’s strength against a basket of six major currencies, rose 1.1 percent to 98.98, less than 2 percent shy of a 12-year peak. A robust dollar put downward price pressure on greenback-denominated commodities. Gold tumbled as much as $18 to $1,054 an ounce, and West Texas Intermediate (WTI) crude oil, the U.S. benchmark, fell 2 percent to $34.84 a barrel in morning session. Argentina’s peso plunged against the dollar after the country’s new government floated the currency freely in an effort to attract investors and revitalize the stagnant economy. The peso fell 27 percent to 13.4 per dollar as of the close of Thursday trading in Buenos Aires, after tumbling as much as 30 percent to 13.95 per dollar earlier. It was the biggest one-day devaluation in decades and market reaction was heavy and volatile. The decline brought the official exchange rate closer in line with where the peso had been trading in the black market. Advanced Markets The U.S. Federal Reserve lifted the target range of the federal funds rate by 25 basis points to 0.25 - 0.5 percent, in a move that was widely anticipated. The statement noted strengthening labor market conditions so far this year, and emphasized the expectation that economic conditions going forward will “warrant only gradual increases” as inflation moves towards the 2 percent target. Separately, the U.S. current account deficit widened to $124.1 billion in Q3 (sa), equivalent to about 2.7 percent of GDP and the highest level since 2012. The result was mainly due to shifts in primary and secondary income balances, with the trade deficit largely unchanged. Euro Area hourly labor costs rose 1.1 percent (y/y) in Q3, decelerating from the 1.6 percent increase in Q2. The increase in hourly wages and salaries was led by rises in industry and services. U.K. retail sales rose 1.7 percent in November (m/m), rebounding from a 0.5 percent fall in October and ahead of expectations. Year-on-year, retail sales were up 5 percent, led by online sales. Emerging and Developing Economies East Asia and Pacific The Bank Indonesia left its benchmark interest rate on hold at 7.50 percent in December, as expected. The lending facility and the deposit facility rate were also left unchanged at 8.0 percent and 5.5 percent respectively. The Philippine central bank maintained its key interest rates for the tenth consecutive rate-setting session in December. The overnight borrowing or reverse repurchase facility was held at 4.0 percent and the 1 overnight lending or repurchase facility at 6.0 percent. The reserve requirement ratios was also left unchanged. Europe and Central Asia Russian jobless rate unexpectedly increased to 5.8 percent in November from 5.5 percent in October and above market expectations of 5.6 percent. It is the highest rate since April, as the number of unemployed people edged up while economically active declined. Sub-Saharan Africa Reaching the highest since August 2011, Angola’s inflation rate was 13.29 percent (y/y) in November, up from 12.40 percent in October. On a monthly basis, consumer prices rose 1.19 percent, as compared to 1.17 percent increase in October. December 17, 2015 The Global Daily is an informal briefing on global economic and financial developments compiled by the World Bank’s Development Economics Prospects Group. Recent issues, together with analysis of a variety of macroeconomic topics, covered by the Group, may be found at: http://www.worldbank.org/prospects. The views expressed in the Global Daily do not necessarily reflect those of The World Bank Group, its Board of Executive Directors, or the governments they represent. Feedback and requests to be added to or dropped from the distribution list may be sent to: Derek Chen (dchen2@worldbank.org). 2