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Fed members' dovish remarks weigh on USD - BTMU

FXStreet (Łódź) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ notes that the USD, which came under pressure during the weekend due to dovish comments from various Fed members, weakened in the Asian session with USD/JPY falling towards the 107.00 area.

Key Quotes

"Fed Vice Chairman Fischer stated in a speech at the IMF’s annual meetings that 'if foreign growth is weaker than anticipated, the consequences for the US economy could lead the Fed to remove accommodation more slowly than otherwise.' He also stated that that the Fed won’t raise rates until the US expansion 'has advanced far enough', and that emerging markets should be able to weather the increase."

"Elsewhere, Fed Governor Tarullo told a banking conference on the side-lines of the IMF talks that 'I’m worried about growth around the world right now' and that 'this is obviously a set of things that we have to think about in our own policies going forward'."

"Recent comments from Fed members which have displayed concern over slowing growth overseas, falling commodity prices and a stronger US dollar signal that the first rate hike from Fed may be delayed until later in 2015 which is helping to both dampen US dollar strength in the near-term and offer some respite for hard hit emerging market currencies."

"The increasing likelihood of delayed monetary tightening from the Fed will likely provide only temporary support for emerging market currencies. The US economy remains a large, closed economy which is mainly driven by domestic demand, and as a result will be less negatively impacted from slowing overseas growth than other major economies."

"The main channel which could delay Fed tightening will likely be through lower inflation resulting from the decline in commodity prices and a stronger US dollar. The relative out performance of the US economy, even if Fed monetary tightening is delayed, is likely to see the US dollar strengthen further still in the year ahead although the pace of gains may begin to prove more gradual."

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