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Taper 7: Dollar shooting higher – two dissenters

The Fed announced a 7th and last taper of bond buys,  to $15 billion per month, en route to an end to QE in its next meeting in October. The word considerable remains in the statement.

Analysis:  Yellen is cautious, but markets want to buy dollars – what currencies are vulnerable?

The focus is on the  statement and particularly one word: “considerable”, related to the time between the end of QE and the actual rate hike.  See the live coverage:

From the statement:

Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective. Longer-term inflation expectations have remained stable.

And here is the dissents:

Voting against the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee’s stated forward guidance. President Plosser objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals

Another reasons is that 14 members see the first hike in 2015 compared with 12 beforehand.

Currencies were stable  before the publication. — more coming —

Note that the event is accompanied by updated forecasts for growth, employment and inflation, as well as for future rate levels.

Janet Yellen begins her press conference at 18:30 GMT.

Yellen maintains a dovish tone.

  • Exit strategy doesn’t mean policy change
  • QE is expected to end in October (no surprises)
  • Economy expanding at a moderate pace.
  • The pace of tightening depends on the economy.

Market estimations stand at mid 2015, but some where expecting the Fed to change its language now, dropping this word and hinting of an earlier hike.

While  we think the Fed may eventually hike already in March or April, recent US figures were somewhat underwhelming: jobs grew by only 142K and JOLTS and jobless claims stagnated. Here is the preview: Considerable chance of dollar slide

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.