Back
31 Oct 2013
Flash: USD bid but only for now?
FXstreet.com (London) - Research teams at BBH explained that despite the knee-jerk positive reaction, the FOMC decision to keep policy steady yesterday should eventually bring back into focus the major negative factor for the dollar.
Key Quotes:
“For now however, the dollar has strengthened, yields went lower, and equities pared some of their gains following the decision”.
“Perhaps the FOMC disappointed those expecting a more dovish tone to the statement”.
“Instead, the most notable development from the statement was the removal of the language referring to the “tightening of financial conditions.” This is probably just an acknowledgement of the 30 bp or so decline in yields since the time of prior to the last meeting”.
“It maintained the $85 bln per month pace of asset purchases, saying it needs “more evidence” of sustainable growth before tapering begins”.
“The Fed noted that “indicators of labor market conditions have shown further improvement.” Perhaps the Fed is only referencing the unemployment rate, which has indeed fallen. But as we’ve noted before, job growth has slowed”.
“The 3-month average job growth stands at 143k vs. 6-month average at 163k and 12-month at 185k”.
“In any case, we doubt the Fed will get any actionable evidence ahead of the December 17/18 meeting, not with distortions in the data from the government shutdown”.
“The Fed has been too optimistic with its outlook over the past year, regularly revising down its forecasts each quarter. The next revision is at the December FOMC meeting, and we suspect the Fed will unveil more downward revisions to the outlook then as well”.
“Therefore, our base case remains for QE to continue into 2014 with tapering off the table for now. As such, we see the dollar still trading on the back foot in the near term, though we expect a recovery next year as the tapering/tightening debate picks up again”.
Key Quotes:
“For now however, the dollar has strengthened, yields went lower, and equities pared some of their gains following the decision”.
“Perhaps the FOMC disappointed those expecting a more dovish tone to the statement”.
“Instead, the most notable development from the statement was the removal of the language referring to the “tightening of financial conditions.” This is probably just an acknowledgement of the 30 bp or so decline in yields since the time of prior to the last meeting”.
“It maintained the $85 bln per month pace of asset purchases, saying it needs “more evidence” of sustainable growth before tapering begins”.
“The Fed noted that “indicators of labor market conditions have shown further improvement.” Perhaps the Fed is only referencing the unemployment rate, which has indeed fallen. But as we’ve noted before, job growth has slowed”.
“The 3-month average job growth stands at 143k vs. 6-month average at 163k and 12-month at 185k”.
“In any case, we doubt the Fed will get any actionable evidence ahead of the December 17/18 meeting, not with distortions in the data from the government shutdown”.
“The Fed has been too optimistic with its outlook over the past year, regularly revising down its forecasts each quarter. The next revision is at the December FOMC meeting, and we suspect the Fed will unveil more downward revisions to the outlook then as well”.
“Therefore, our base case remains for QE to continue into 2014 with tapering off the table for now. As such, we see the dollar still trading on the back foot in the near term, though we expect a recovery next year as the tapering/tightening debate picks up again”.