[B]Market Review[/B] - 18/09/2013 [I]22:05GMT[/I]
[B]Dollar tumbles broadly after Fed holds off on tapering stimulus[/B]
The greenback tumbled broadly on Wednesday as the Federal Reserve left its key benchmark lending target, the fed funds rate, unchanged at 0.25% and kept its USD85 billion monthly asset-purchasing program in place.
The Fed said ‘to keep buying $85 billion in bonds per month, split as $40 billion and $45 billion treasuries; downside risks to economic and labor market outlooks have diminished but tightening of financial conditions in recent months, if sustained, could slow pace of improvement; to keep Fed funds 0-0.25% as long as jobless rate above 6.5%, 1-2 year projected inflation no more than 2.5%, longer-term inflation expectations well anchored; asset purchases are not on a preset course and Fed decision about their pace remains contingent on its economic outlook, likely efficacy and costs; in judging whether to moderate the pace of asset purchases the committee will at coming meetings assess if data continues to support expected improvements in labor market and inflation; Fed vote in favor of policy was 9-1; George dissented from concern over potential imbalances and inflation; Raskin did not take part in meeting; recognizes inflation persistently below 2% could pose risks to economic performance, but anticipates inflation will move toward objective over medium term.’
Versus the Japanese yen, although the greenback rose briefly to 99.34 in Asia, price fell sharply to 98.79 in European morning on cross buying of yen versus other currencies due to the steep fall in Japan’s Nikkei futures before recovering, however, renewed selling emerged at 99.10 and dollar later tumbled to as low as 97.79 in New York afternoon after Fed kept its monetary policy unchanged.
Although the single currency dropped from Asian high of 1.3364 to 1.3338 in New York morning, renewed buying in euro crosses lifted price above said resistance at New York midday and price later rallied to a fresh 7-month peak at 1.3543 after announcement of Fed’s monetary policy and the Chairman Ben Bernanke’s dovish tone comments before easing.
Fed’s Bernanke said in news conference following a meeting of the central bank’s policy-setting that ‘jobless rate above acceptable levels; downside risks to growth have eased; job conditions far from what we would like to see but progress made; fiscal conditions slowing growth by a percentage point or more this year; contours of mid term economic outlook were close to June views; but data not yet confirming baseline outlook to warrant reduction in pace of purchases; upcoming fiscal debates involve risks to market; low Fed funds rate will be appropriate at least as long as jobless rate above 6.5%; Fed funds rate increases might not occur until jobless rate considerably below 6.5%; policymakers think that headwinds to economy will abate only slowing meaning patience needed; may need to keep Federal funds rate below neutral rate for some time.’
Cable traded narrowly above Tuesday’s low at 1.5986 in Asia yesterday before ratcheting higher in European morning, the pair pierced through Monday’s top at 1.5963 to 1.5980 in European morning after Bank of England minutes suggested policymakers were not too concerned about rising short term market rates. Later, cable posted another rally in New York afternoon on dollar’s broad-based weakness after Fed rate decision and climbed to a fresh 8-month top at 1.6163.
BoE released its minutes which stated ‘no member judged more stimulus appropriate at present, different views on need for future loosening; U.K. recovery increasingly taking hold, accompanied by upward move in sterling market interest rates; U.K. recovery at least as strong as forecast in August, Euro zone recovery stronger than expected; CPI slightly more likely to be below 2.5% in 18-24 months.’
On the data front, U.S. housing starts came in at 0.891M and 0.9% m/m, versus the forecast of 0.917M and 2.3% m/m. U.S. building permits came in at 0.918M and -3.8% m/m, versus the expectation of 0.950M and -0.4% m/m.
[B]Data to be released on Thursday: [/B]
New Zealand GDP, Japan trade balance, import, export, all industry index, leading index, U.K. retail sales, CBI industrial trend, Canada wholesale sales, U.S. jobless claim, current account, Philadelphia Fed survey, existing homes sales, leading indicators. China will be close due to public holiday.