Fed Found a Third Way – Markets Back to Normal
Posted on December 17, 2009 by Yohay
Filed Under Other Forex Stuff | 9 Comments
Ben Bernanke, Time’s Man of the Year, managed to find a creative wording for the FOMC statement that eventually left the markets unchanged, in the last major event for 2009.
Ben Bernanke just won the title “Man of the Year” for 2009. Time Magazine praised him for the way he dealt with the huge financial crisis. Also in his last decision for 2009, he was creative.
The wording about interest rates being low for an extended period of time was not changed. This was a stabilizing message that kept Wall Street strong, and prevented a shock.
On the other hand, he did express a little bit more optimism about the economic situation, so the statement wasn’t too depressing.
In the preview before the FOMC meeting, I wrote that there’s no middle ground – that he’ll either leave the “extended period” unchanged and send the dollar down, or remove these words and send it up.
Looking again at the poll I ran with the Currensee community, I now see that the results have fully stabilized as well: 50% said that the dollar would go up and 50% down. Earlier, the dollar bulls had a small advantage.
Well, Bernanke found a very creative way of balancing the words and keeping everything stable. It took time for traders to understand his complex message. During this time, the dollar strengthened and trading was choppy.
But after the initial moves up and down, the major pairs returned to the levels before the decision. EUR/USD is at 1.4530. GBP/USD is at 1.6340, enjoying higher levels after the ground-breaking employment numbers. Other pairs are also back to normal.
The next event in the same scale is already in 2010 – Will Non-Farm Payrolls show growth in jobs?
Enjoyed the post? You may want to subscribe by RSS feed or Email.Comments
9 Responses to “Fed Found a Third Way – Markets Back to Normal”
Leave a Reply
Popular Forex Posts
Daily FX Headlines- Dollar Struggles Ahead of 2Q GDP – Fed Maintains Dovish Outlook July 29, 2010
- Using the Doji July 29, 2010
- Pound Could Falter As Risk Appetite and Interest Rate Expectations Stumble July 29, 2010
- GBP/USD Channel Provides Opportunity with Sterling Stretched July 29, 2010
- U.S. Dollar Forecast To Fall Further Against Euro, British Pound, and Japanese Yen July 29, 2010
Stay up to date!
-
-
[...] goes on after the FOMC Statement which creatively left the market unchanged. Today’s highlights are British retail sales, [...]
wouldn’t leaving out “extended period” be more likely to send the dollar up? If it’s perceived that he will raise interest rates anytime soon…traders would be more likely to jump out of their short dollar positions…as they’ve been doing in Aud/Usd…and others because of recently strong job numbers. Thanks for your analyses though…
bento, thanks for your comment.
The wording of an “extended period of low rates” is dollar-bearish. It means that the rates will stay low for a long time, making the dollar unattractive. Removing these words would mean that a rate hike will happen sooner, making the dollar more attractive.
You’re quite right sir…I read your article as: leave out…rather than “leave…”.
[...] counterpart from the south, Ben Bernanke, continued the stance of low rates for an extended period of time. Note that American CPI, that was published just yesterday, came out below expectations – [...]
[...] Ben Bernanke’s mixed message in the FOMC Statement will continue to shake the markets for quite some time. He managed to keep the markets balanced for a short period of 6 hours, before the bulls began to rage. OK, let’s start the review: [...]
[...] in the US, the FOMC Meeting Minutes will shed some more light on the confusing FOMC Statement that eventually pushed the dollar [...]
[...] Meeting Minutes: Published on Wednesday at 19:00 GMT. Although the wording of the statement hasn’t changed, there was one surprise in the recent American rate decision – one [...]
[...] American rate decision: Published on Tuesday at 18:15 GMT. Ben Bernanke already made his move out of the usual cycle – the “mini rate hike” of the discount rate shocked the markets and signaled that the Federal Reserve will probably be more aggressive than other central banks. Will they finally drop the wording “an extended period of time” for the interest rate? As usual, the FOMC Statement will be in the limelight, as the Federal Funds Rate isn’t expected to move. Note that the statement can be very confusing. [...]