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18 Sep 2014
USD to remain king of the board - ANZ
FXStreet (Bali) - ANZ expects the USD to strengthen against most currencies going forward following the FOMC outcome.
Key Quotes
"The FOMC statement was little changed from July and maintained existing forward guidance that interest rates will stay low for a “considerable time after the asset purchase program ends”."
"However, the central tendency projection for interest rates in December 2015 was raised by 25bps to 1.375% and Fisher joined Plosser in dissenting. That helped to support the dollar."
"The target for the unemployment rate at end 2014 was tweaked lower to 5.9-6.0%. Asset purchases were reduced by 10bn to USD15bn from October and the FOMC expects to end asset purchases at its next meeting."
"In addition, the FOMC provided a statement on Policy Normalization Principles and Plans. When normalization of interest rates begins, the FOMC will provide a target range for fed funds, not a point target. The normalization process will begin by raising the target range for fed funds. In the Principles, the Fed also said it would reduce the Fed’s security holdings by “ceasing to reinvest repayments of principal on securities held in the SOMA”. This was a surprise."
"On currencies, the price action in the USD was intriguing. The price action was strong, and fits with our pre-existing views. We expect the USD to strengthen against most currencies going forward (except the CNY, and perhaps the EUR medium term). The trigger for the move presumably is the shift in the dots."
"The price action itself also potentially sends an important signal. The currency moves in response to the Fed were significant on any measure. And yet the Fed seems to have tried to maintain quite a dovish tone. As such, it seems increasingly clear that expecting currencies to handle some small hikes in the fed funds rate, better than currencies handled the taper (tantrums) last year, is misguided."
Key Quotes
"The FOMC statement was little changed from July and maintained existing forward guidance that interest rates will stay low for a “considerable time after the asset purchase program ends”."
"However, the central tendency projection for interest rates in December 2015 was raised by 25bps to 1.375% and Fisher joined Plosser in dissenting. That helped to support the dollar."
"The target for the unemployment rate at end 2014 was tweaked lower to 5.9-6.0%. Asset purchases were reduced by 10bn to USD15bn from October and the FOMC expects to end asset purchases at its next meeting."
"In addition, the FOMC provided a statement on Policy Normalization Principles and Plans. When normalization of interest rates begins, the FOMC will provide a target range for fed funds, not a point target. The normalization process will begin by raising the target range for fed funds. In the Principles, the Fed also said it would reduce the Fed’s security holdings by “ceasing to reinvest repayments of principal on securities held in the SOMA”. This was a surprise."
"On currencies, the price action in the USD was intriguing. The price action was strong, and fits with our pre-existing views. We expect the USD to strengthen against most currencies going forward (except the CNY, and perhaps the EUR medium term). The trigger for the move presumably is the shift in the dots."
"The price action itself also potentially sends an important signal. The currency moves in response to the Fed were significant on any measure. And yet the Fed seems to have tried to maintain quite a dovish tone. As such, it seems increasingly clear that expecting currencies to handle some small hikes in the fed funds rate, better than currencies handled the taper (tantrums) last year, is misguided."