Forex − Fed Shows Signs Of Moving Away From Loose Monetary Policy
Thu, Jan 28 2010, 10:32 GMT
by Peter Rosenstreich
ACM - Advanced Currency Markets
Forex News and Events:
Yesterday’s FOMC statement provided an unexpected split vote that suggests the Fed may be starting to lean away from continued loose monetary policy. Although the committee members kept interest rates unchanged and preserved most of the wording from the last statement, Fed member Hoenig dissented in the vote; as he believed “that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted”. This 9-1 outcome represents the first non-unanimous vote since January 2009, and is an important development in the Fed path to normalization of monetary policy. USDJPY rallied strongly on the news as the appeal of the JPY’s safe-haven status dimmed against the prospect of US rate hikes. There was a further rally in USDJPY after Obama’s State of the Union address which focused predominantly on job creation and healthcare reform; neutralizing some of the risk premium priced into the market that he might discuss further banking reform. Nevertheless, the considerable weight of ongoing sovereign debt concerns, fears that Chinese monetary tightening may scupper the global recovery, and subdued data releases are prevented a broad-based JPY sell-off. The data this morning has so far, failed to inspire any new trends; the unemployment rate in Germany rose to 8.2% from 8.1% last month but this was exactly in line with expectations, German CPI (EU harmonized) was much lower than expected at -0.7% MoM against expectations for -0.4%, but Eurozone economic sentiment came out at a much stronger 95.7 print (92.4 expected) and there was an upward revision to last month’s reading (from 91.3 to 94.1).
Thu, Jan 28 2010, 10:32 GMT
by Peter Rosenstreich
ACM - Advanced Currency Markets
Forex News and Events:
Yesterday’s FOMC statement provided an unexpected split vote that suggests the Fed may be starting to lean away from continued loose monetary policy. Although the committee members kept interest rates unchanged and preserved most of the wording from the last statement, Fed member Hoenig dissented in the vote; as he believed “that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted”. This 9-1 outcome represents the first non-unanimous vote since January 2009, and is an important development in the Fed path to normalization of monetary policy. USDJPY rallied strongly on the news as the appeal of the JPY’s safe-haven status dimmed against the prospect of US rate hikes. There was a further rally in USDJPY after Obama’s State of the Union address which focused predominantly on job creation and healthcare reform; neutralizing some of the risk premium priced into the market that he might discuss further banking reform. Nevertheless, the considerable weight of ongoing sovereign debt concerns, fears that Chinese monetary tightening may scupper the global recovery, and subdued data releases are prevented a broad-based JPY sell-off. The data this morning has so far, failed to inspire any new trends; the unemployment rate in Germany rose to 8.2% from 8.1% last month but this was exactly in line with expectations, German CPI (EU harmonized) was much lower than expected at -0.7% MoM against expectations for -0.4%, but Eurozone economic sentiment came out at a much stronger 95.7 print (92.4 expected) and there was an upward revision to last month’s reading (from 91.3 to 94.1).