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20 Mar 2014
USD gathering traction after Fed - BTMU
FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ, observes the renewed strength of the greenback post-Fed.
Key Quotes
"The US dollar has strengthened following yesterday’s FOMC meeting with USD/JPY rising to an intra-day high overnight of 102.50. The US dollar has been supported by the less dovish than expected outlook for Fed policy which has prompted the US interest rate market to discount both earlier and more Fed fund rate hikes in the coming years. As expected the Fed continued to taper QE by a further USD10 billion reducing monthly asset purchases to USD55 billion."
"The Fed also shifted to a more qualitative form of forward guidance although “the change in … guidance does not indicate any change in the Committee’s policy intentions as set forth in its recent statements”. The Fed will now assess the progress, both realized and expected, towards its objectives of maximum employment and 2% inflation which will take into account a wide range of information including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments."
"The Fed anticipates that it will likely be appropriate to maintain the current target range for the federal funds rate for a “considerable time” after the asset purchase program ends especially if projected inflation continues to run below the their longer-run 2.0% goal. At the press conference, Fed Chair Yellen suggested that a “considerable time” equated
approximately to about six months."
"With the Fed on course to end QE by October, it signals that the first Fed funds rate hike could occur as soon as April or May of next year. In addition, the Fed’s median projections for the Fed funds rate in the coming years were also raised. The median projections for the Fed funds rate at the end of 2015 were raised by 0.25 point to 1.00%, and by 0.50 point to 2.25% at the end of 2016 implying a slightly faster pace of tightening. However, Fed Chair Yellen cautioned against reading too much into these projections which “may move up and down over time”. The Fed’s projections for the unemployment rate were revised lower by 0.2 percentage points throughout their forecast horizon supporting the slightly higher Fed funds rate projections."
"As a result the US interest rate market is adjusting to discount higher yields. The implied yield on the December 2015 Fed fund futures contract has jumped from just above 0.6% prior to yesterday’s FOMC meeting to just below 0.8%, and the implied yield on the December 2016 contract has increased around 0.25 point to 1.86%, although both still imply lessexpected tightening than the Fed’s updated median projections. It still leaves scope for the US dollar to potentially strengthen further in the near-term supported by evidence that the US economy is rebounding after the recent weather related slowdown."
Key Quotes
"The US dollar has strengthened following yesterday’s FOMC meeting with USD/JPY rising to an intra-day high overnight of 102.50. The US dollar has been supported by the less dovish than expected outlook for Fed policy which has prompted the US interest rate market to discount both earlier and more Fed fund rate hikes in the coming years. As expected the Fed continued to taper QE by a further USD10 billion reducing monthly asset purchases to USD55 billion."
"The Fed also shifted to a more qualitative form of forward guidance although “the change in … guidance does not indicate any change in the Committee’s policy intentions as set forth in its recent statements”. The Fed will now assess the progress, both realized and expected, towards its objectives of maximum employment and 2% inflation which will take into account a wide range of information including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments."
"The Fed anticipates that it will likely be appropriate to maintain the current target range for the federal funds rate for a “considerable time” after the asset purchase program ends especially if projected inflation continues to run below the their longer-run 2.0% goal. At the press conference, Fed Chair Yellen suggested that a “considerable time” equated
approximately to about six months."
"With the Fed on course to end QE by October, it signals that the first Fed funds rate hike could occur as soon as April or May of next year. In addition, the Fed’s median projections for the Fed funds rate in the coming years were also raised. The median projections for the Fed funds rate at the end of 2015 were raised by 0.25 point to 1.00%, and by 0.50 point to 2.25% at the end of 2016 implying a slightly faster pace of tightening. However, Fed Chair Yellen cautioned against reading too much into these projections which “may move up and down over time”. The Fed’s projections for the unemployment rate were revised lower by 0.2 percentage points throughout their forecast horizon supporting the slightly higher Fed funds rate projections."
"As a result the US interest rate market is adjusting to discount higher yields. The implied yield on the December 2015 Fed fund futures contract has jumped from just above 0.6% prior to yesterday’s FOMC meeting to just below 0.8%, and the implied yield on the December 2016 contract has increased around 0.25 point to 1.86%, although both still imply lessexpected tightening than the Fed’s updated median projections. It still leaves scope for the US dollar to potentially strengthen further in the near-term supported by evidence that the US economy is rebounding after the recent weather related slowdown."