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18 Sep 2013
European open: FOMC remains the centre of attention, NZD a good play on monetary policy
FXstreet.com (London) - Heading into the European open, all eyes are once again on the Fed. Overnight markets were driven on the consensus that the Fed will today announce a tapering of its monthly asset purchases. It is expected that the Fed will cut its Treasury purchases by USD10bn, from USD45bn. However, it is likely that it will leave its mortgage-backed securities (MBS) support untouched.
However, any tapering, and the form that it will take, is far from a foregone conclusion. Any change from the $10bn consensus will be market significant, negating any “if it’s in the news, its in the price” complacency.
Should the FOMC make the decision that, in light of recent disappointing round of labour market data, the US economy is not yet strong enough to withstand a tapering of Fed stimulus, in may take the decision to postpone any reduction. Inertia from the Fed would trigger selling into safety, with USD/JPY and USD/CHF shorts coming into focus.
Expanding slower is the new tightening
Should the Fed taper as predicted, expect to see some modest dollar selling on relative tightening of monetary policy. Given that this has been the expected outcome, there is limited room for EUR/USD selling. Buying NZD/USD could be an attractive bet, given contrasting monetary policy.
On the other side of the Atlantic, the minutes from the Bank of England’s monetary policy committee’s September meeting will be under scrutiny. At its previous meeting, the MPC voted 8-1 in favour of forward guidance, and voted unanimously to maintain the 0.5 percent base rate and GBP375bn asset purchases.
In commodities, gold has taken further tumbles, breaking below USD1,300/oz to USD1,293.80 before rebounding, but struggled to break back above USD1,300.
Asian stocks climbed overnight in anticipation of Fed easing, with indices hitting four-month highs. The Nikkei gained 193 points to 14,505.36.
However, any tapering, and the form that it will take, is far from a foregone conclusion. Any change from the $10bn consensus will be market significant, negating any “if it’s in the news, its in the price” complacency.
Should the FOMC make the decision that, in light of recent disappointing round of labour market data, the US economy is not yet strong enough to withstand a tapering of Fed stimulus, in may take the decision to postpone any reduction. Inertia from the Fed would trigger selling into safety, with USD/JPY and USD/CHF shorts coming into focus.
Expanding slower is the new tightening
Should the Fed taper as predicted, expect to see some modest dollar selling on relative tightening of monetary policy. Given that this has been the expected outcome, there is limited room for EUR/USD selling. Buying NZD/USD could be an attractive bet, given contrasting monetary policy.
On the other side of the Atlantic, the minutes from the Bank of England’s monetary policy committee’s September meeting will be under scrutiny. At its previous meeting, the MPC voted 8-1 in favour of forward guidance, and voted unanimously to maintain the 0.5 percent base rate and GBP375bn asset purchases.
In commodities, gold has taken further tumbles, breaking below USD1,300/oz to USD1,293.80 before rebounding, but struggled to break back above USD1,300.
Asian stocks climbed overnight in anticipation of Fed easing, with indices hitting four-month highs. The Nikkei gained 193 points to 14,505.36.