Fed Continues With Taper Despite EM Woes and Other Top Forex News.
The Federal Reserve opted to continue cutting back the amount of bonds it purchases as part of its monetary stimulus program on Wednesday, by cutting bond purchases to $65 billion a month in February, down from $75 billion in January.
The move was inline with market expectations although there were some murmurings that recent turmoil in emerging markets might cause the Fed to postpone tapering for this month.
In a statement, the Fed said that economic activity is picking up, the labor market is making some improvement, but that recent congressional inability to agree on spending packages is still dragging on recovery albeit less nowadays due to recent compromises.
Most of todays action centred on the FOMC statement, with the dollar dropping to a low of 101.93 against the yen before recovering after the Fed’s announcement. USD/JPY ended the U.S. session down 0.69% at 102.22.
In Europe the dollar traded steady against the dollar for most of the session but fell back as investors reacted to the taper announcement.
EUR/USD ended the session down 0.14% at 1.3652, up from a low of 1.3603 and down from a high of 1.3685.
And the pound fell against the dollar after the release of the Fed statement as investors remain cautious about the ongoing turmoil in emerging markets. GBP/USD ended the session down 0.10% at 1.6563.
Elsewhere, the Australian dollar fell after recovering some of this weeks losses during the Asian session. The Fed’s tapering announcement along with continued fears of economic instability in emerging market economies caused the Aussie sell-off. AUD/USD fell 0.19% to 0.8761, down from a high of 0.88271.
And the New Zealand dollar continues to be supported, climbing to a high of 0.8273 early in the session, but fell back on the taper announcement, finally closing up just 0.04% at 0.8261.
Finally, the Canadian dollar drifted lower after the Fed’s announcement indicated that the U.S. central bank has confidence in the U.S. economic recovery which piled further pressure on the loonie. USD/CAD fell by 0.03% to 1.1150 at the close of the session.
More coverage of today’s session.
- BusinessInsider: It’s still all about the Fed. – We’ve just seen three unexpected rate hikes from emerging market central banks. First was India, then Turkey and finally, South Africa. While these rate hikes have moved markets, Bob Savage writes in his latest Track Research note that “the key driver today isn’t the failed reaction of the TRY to rate hikes from the central bank but more the contagion of the FOMC continuing to taper its QE.”
- MoneyBeat: Why the Fed shouldn’t overreact to emerging-market turmoil. – The Federal Reserve shouldn’t let the latest spat of emerging-market turmoil ruin its taper plans. That view comes courtesy of Millan Mulraine, deputy head of U.S. research and strategy at TD Securities, who says the Fed shouldn’t backtrack on its plans to keep dialing back its bond-buying program even amid the Turkish lira’s wild wave of volatility, South Africa’s plunging rand and the repercussions felt in the U.S.
More Top Stories:
FT: Rate rises fail to staunch EM currency sell-off. – The sell-off in emerging market currencies intensified on Wednesday even after several central banks hiked interest rates, with investors saying policy makers would need to take tougher action to restore confidence.
FT: New York finance regulator voices backing for Bitcoin. – Benjamin Lawsky, the superintendent of financial services in New York whose tough stance on money laundering wrung a $340m settlement from Standard Chartered, has said Bitcoin has reached a “tipping point” where its potential benefits outweigh the risks of illegal activity.
Globe and Mail: How the Canadian dollar is nearing ‘fair value’. – The Canadian dollar is nearing “fair value,” based on various measures. The loonie, as the country’s dollar coin is known, slipped today to a low just shy of 89.5 cents (U.S.), and late in the day was at about 89.7 cents.
The Australian: Australian dollar firms as instability fears ease. – The Australian dollar was higher today as fears of economic instability in emerging market economies eased, at least temporarily.
New Zealand Herald: High-flying NZ dollar causes jitters. – The New Zealand dollar continues to trade at around eight-year highs against the Australian dollar but foreign exchange strategists doubt the currency will hit parity with its transtasman counterpart any time soon.