Week in FX Americas – Fed Statement and Weak European Data Boost USD

The market is looking at the US Federal Reserve for guidance in these turbulent times. Fed Chairman Ben Bernanke is set to step down early next year and his successor should have been announced already. Larry Summers a favourite stepped down under strange circumstances which have a political underpinnings. Janet Yellen the current deputy chair was not the Obama’s administration first choice, but she continues to be the economist’s choice.

The Fed has been on the back foot starting this summer. The announcement of a planned reduction of its bond-buying program was announced with much certainty, but no schedule. The market suddenly exhibited a dollar exuberance that was detrimental to emerging markets. A lack of announcement of when and or what the tapering plans are, have hurt the dollar. The pain was at its most intense after the US shutdown.

The Federal Open Market Committee meeting this week was heavily anticipated. There were two main scenarios on the table. One, a continuation of the dovish rhetoric from Bernanke and Co. that would stress the Fed was vigilant on US economic indicators. Two, a more proactive stance with an announcement and details on taper before the year end.

The market did not get either scenario, but instead the Fed put forth a less dovish statement where the Fed will continue to be vigilant and look for improving economic conditions, but the omission of the “tighter financial conditions” was seen as a hint that tapering is not out of the question before the end of the year. The USD got a boost from the announcement and bounced back versus the major pairs.

European conditions deteriorated this week and exporters in the continent continue to protest the high level of the EUR. The rise of the single currency has finally put a dent in German confidence and production which is vital for the economic recovery of the eurozone.

A Fed successor will most likely be named before the central bank decides to alter its bond-buying program as this major decision is sure to mark their tenure.

• Obama Declares U.S. Open for Business –
• Market Wrong On December Taper Scenario – Nomura –
• Obama to Focus on Attracting Investment Capital –
• Canada Outlook Modest After 0.3 Percent GDP Growth –
• Major Central Banks Extend Currency Swap Agreements –
• US Jobless Drops After California Glitch Solved –
• U.S. Dollar Up after Fed Keeps Stimulus in Place –
• US Treasury Critical of Germany and China –
• U.S. Dollar edges towards Two Week High –
• Risk of Another 1999 Bubble –
• US Budget Deficit Narrowest Since Obama Assumed Office –
• U.S. Dollar Rises after Fed Comments on Economy –
• U.S. Dollar Rebounds after Fed Meeting –
• Markets Unsettled by a Less Dovish Fed –
• Fed Maintains Bond Buying Awaits Stronger Outlook for Taper –
• USD Falls on Tapering Delay Expectations –
• Poloz: No Longer a Bias Towards Higher Interest Rates –
• Bank of Canada Governor Says Stimulus Remains Appropiate –

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