USD softer after Fed meeting

FX markets were relatively choppy and the dollar is currently softer against the majors following the FOMC announcement, updated Fed projections, and press conference. U.S. Treasury yields are mixed and 10-year yields briefly spiked above the 2.01% 100-day SMA and are currently back below the pivotal level.

The Fed kept rates on hold at 0-25bps as expected and maintained its stance to keep rates “exceptionally low” through late 2014. There were subtle changes to the FOMC statement, noting recent improvement in labor market conditions and the housing sector, but maintaining the view that the unemployment rate is elevated and housing market depressed. The bank also noted that inflation has picked up due to higher oil prices and said that they “economic growth to remain moderate over coming quarters and then to pick up gradually”. Overall, the statement was slightly upbeat and made no mention of QE which saw yields and the buck move higher.

The release of Fed projections showed upwards revision to real GDP growth with forecasts of 2.4%-2.9% for 2012 up from the prior 2.2%-2.7% estimate and the unemployment rate forecast was lowered to 7.8%-8% this year from the previous forecast of 8.2%-8.5%. At the press conference, Bernanke made comments indicating that the Fed won’t hesitate to take action if necessary and said that “tools remain on the table”. However for now, he noted, that good reasons exist to continue to keep policy easy and rates low. Treasury yields and the dollar reversed their initial gains and the dollar index is currently trading near lows of the session around the 79.00 figure.

Also of note was the disappointing release of durable goods orders this morning which dropped by -4.2% (cons. -1.7%) on the headline reading in March – the biggest drop in 3 years. Durables ex transportations also came in worse than expected with an unexpected decline of -1.1% (cons. +0.5%).

The euro continues to trade relatively firm against most of its major counterparts (except for the commodity currencies) after ECB President Draghi called for a “growth compact”. The remarks were viewed as constructive and German Chancellor Merkel backed the ECB President’s statements but rejected the notion of stimulus spending to boost economic growth. In other European news, margin requirements were raised to trade some Spanish and French bonds, however sovereign yields have not yet reflected the news. EUR/USD is trading above the 1.32 figure and sees year-long trendline resistance not far above ahead of the 1.33 level. (click here to see chart).

The Reserve Bank of New Zealand will announce interest rates at 1700ET and is expected to keep rates on hold at 2.50%. Elsewhere in the Asia/Pacific session is the release of Japan’s weekly securities investments, the Feb. all industry activity index, and the Australian Feb. Conference Board leading index.

Source: Forex.com

25.04.2012