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No further US dollar gains expected in the near-term post-FOMC - BTMU

FXStreet (Łódź) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ suggests that the Fed monetary policy meeting on Wednesday shouldn't be a trgiigger for a USD rise in the near-term.

Key Quotes

"We still expect the Fed to bring an end to QE3 which should provide a more supportive environment for the US dollar going forward."

"The Fed’s balance sheet has increased significantly by around USD1.7 trillion to almost USD4.5 trillion since QE3 was announced in September 2012. US labour market conditions have improved significantly over that time period justifying the Fed’s likely decision to bring an end to QE."

"The unemployment rate has continued to decline sharply from 8.1% at the end of August 2012 to 5.9% at the end of September 2014. However, there have been less signs of improvement in achieving the inflation side of the Fed’s mandate."

"The annual rate of change in the core PCE deflator remains subdued at 1.5% in August matching the rate from two years ago. Market-based measures of inflation expectations have also declined notably over the last couple of months alongside the sharp decline in the price of crude oil. In these circumstances, we expect the updated FOMC statement to still signal caution over tightening policy."

"The Fed is also likely to maintain their commitment to keep low rates for a “considerable time” after QE has ended, although Fed members have recently attempted to make the time commitment before the first rate hike more vague. Fed Vice Chairman Fischer has stated that their considerable time commitment could mean anything from two months to one year."

"The statement may also acknowledge the weaker outlook for global growth. A still dovish FOMC policy statement alongside bringing an end to QE will likely help to dampen US dollar strength in the near-term."

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