Dollar traders bided their time Wednesday though the early New York hours, anxiously awaiting the Federal Open Market Committees decision on interest rates and - more importantly their outlook for the economy and inflation.
Before the Fed hit the wires, EURUSD was still holding still in congestion between 1.3290 and 1.3325. The greenback was finding a more consistent bid against the Swiss franc, sending the pair 55 points off of its overnight, range lows to 1.2170. Since hitting a new three-week high in the early London hours, the British pound reversed course and began to loose ground against the dollar. A quick 100-point drop in GBPUSD to 1.9555 marked the height of volatility before consolidating around 1.96. Finally, USDJPY bounced higher to further develop a wedge formation with a top eyed around 118.
Despite the considerable tension in the FX market during the New York session, there were few indicators for traders to tip toe around. However, each held a significant level of market-moving potential. By mid-day the only event to have crossed the ticker was the Mortgage Bankers Associations weekly applications numbers. According to their data, total activity for purchasing and refinancing slipped 2.7 percent in the week through March 16th the first and biggest contraction in a month. While this indicator is usually ignored, the market has taken heed of the data in recent weeks as investors across the finance spectrum monitor developments in the sub-prime mortgage sector for guidance in their own assets. Apart from the headline decline, savy market participants likely took note of the 4.5 percent drop in refinancing applications and the 7.3 percent plunge in adjustable rate mortgage approvals. As ARMs continue to reset to current rates, Americans may begin to switch to the comparative safety of fixed-rate mortgages.
After its few moments in the sun, the MBA applications was stored away for later use while traders turned to the more overbearing risk in the forthcoming FOMC rate decision. Heading into the conclusion of the two-day meeting, the pertinent markets were pricing in predictions of the sixth consecutive pass on changing the nations benchmark lending rate. The real interest behind the event was in the subsequent statement that accompanies the decision. In recent weeks, previous forecasts from officials for inflation and growth have both come under fire. Conflicting with the stable growth projection, regional manufacturing reports have signaled declines for the current month while housing data has revived concerns of an extended and deepened slump. However, last weeks inflation data is expected to make the biggest impact. As the average American grows increasingly concerned with his/her mortgage payment and equities markets fail to reenter the steady bull-trend of past months, the crosshairs have fallen on the Fed. Perhaps looking for an easy out, many are impatiently waiting for the policy body to finally cut rates; yet this contradicts consistent warnings of inflation risks. Following Fridays pick up in headline CPI, few economists actually expect the Fed to remove its hazard flag for price pressures.
Stocks, like the dollar, were little moved in the hours leading up to the FOMC rate decision. By 15:30 GMT, the Dow held the biggest move with a 0.11 percent slide to 12,274.48. At the same time the NASDAQ Composite was off 0.08 percent at 2,410.12 while the S&P 500 slipped 0.06 percent to 1,411.83. Tech stocks were once again making news with a few big earnings announcements. Shares of Oracle jumped 2.3 percent to $17.96 after it posted a better than expected 35 percent rise in profits for the quarter. With the same level of sentiment, Adobe Systems reported a 37 percent rise in profits that sent its shares $1.90 or 4.7 percent to $42.64.
Treasuries were somewhat active leading into the Fed meeting as traders adjusted their positions to account for the slightly firmer inflation numbers last week. The ten-year note was trading 5/32nds lower at 100-14 at 15:25 GMT as its yield climbed 2 basis points to 4.569. Bonds dropped 13/32nds to 100-06 while yields rose 3 basis points to 4.737.