Dot plot outweighs dovish sentence
City Index September 18, 2014 5:07 PM
<p>The US dollar significantly strengthened despite the FOMC repeating the line, “highly accommodative policy to be appropriate for a considerable time after the asset purchase […]</p>
The US dollar significantly strengthened despite the FOMC repeating the line, “highly accommodative policy to be appropriate for a considerable time after the asset purchase program ends”.
But, just as the dollar started to sell off, the market attention turned to the ‘DOT’ projections that were revised higher (as below).
The inflation language was tweaked slightly to reflect the soft August CPI reading as the committee deems that inflation now runs ‘below’ the longer-term goal in contrast to the ‘closer’ message in the prior statement as Fed Chair Janet Yellen repeated her assessment that ‘significant’ slack remains in the labour market.
• End 2015 raised to 1.375% from 1.13%
• End 2016 goes to 2.875% from 2.5%
• End of 2017 3.75% (expected 3.5%)
USD/JPY has seen the largest reaction to the dollar positive FOMC as we trade 107.50-108.85 pre/post the announcement. 110.00 is now firmly in sight as the Nikkei looks to test the two-year highs of 16,320 and the Japanese trade deficit continues to deteriorate led by weaker exports. This is despite the weakening JPY, which could force the BoJ into further stimulus measures.
The European session has been a lively event as the SNB refrained from moving to a negative interest rate policy and strongly reiterated the EUR/CHF floor. They added that they are prepared to buy FX in unlimited quantities whilst emphasising they are ready to take additional measures immediately if needed as SNB president Jordan confirms that economic prospects have deteriorated.
The euro remains under pressure following the LTRO allotment take-up that revealed that the ECB allotted 82.6 billion to banks versus the market expectations of 130-140 billion. This has led to an increase in speculation that further QE measures are imminent as the ECB continue their fight against the threat of deflation.
The focus today will no doubt be on the Scottish referendum as UK retail sales came in as expected at 0.4% this morning.
Scotland is now voting: the bookmakers still have ‘no’ as the outcome, an expectation I share. Meanwhile, I’m starting to try and gauge what a bigger ‘no’ majority may do for the pound.
Supports 1.2835-1.2800-1.2755 | Resistance 1.2935-1.2985-1.3040
Supports 108.30-108.00-107.40 | Resistance 108.95-109.60-110.00
Supports 1.6240-1.6160-1.6055 | Resistance 1.6345-1.6380-1.6420
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