The perils of Fed guidance

22 September, 2015

The dollar has now more than recovered from the losses seen in the wake of last week’s Fed decision to keep rates on hold. This has less to do with the market changing its mind on the course of Fed policy (the fall in US 2 year yields has only been marginally reversed) and more to do with the wider re-assessment of risk and the global economy. Emerging market currencies, having staged a decent recovery since 9th September, changed course yesterday and were weaker (although not universally so). We’ve also had more talk from ECB officials in recent days hinting at the potential for more QE should conditions warrant.

The aftermath of the Fed decision has also seen a growing undercurrent of discontent on the part of investors, some suggesting that the uncertainty created by the seemingly ever changing guidance is actually worse that if the Fed had actually tightened policy by a modest amount. I wrote last year about the perils of continuing forward guidance (see Killing Forward Guidance) and even though the Fed formally dropped this earlier this year (removing reference to accommodative policy for a “considerable period”), their preference remains towards trying to guide markets on the outlook for policy, something which they’ve been doing now, rather unsuccessfully, for more than 2 years now. Recent comments from Bullard suggested that last week’s meeting was a close call and re-iterated that each meeting is live in terms of the potential for a change in policy. For today, the data calendar is again on the light side ahead of tomorrow’s preliminary PMI data for the Eurozone. EURGBP looks interesting after the downmove of the past two sessions, holding just above the 0.72 level, whilst AUDNZD is forming a decent base above the 1.12 level, despite yesterday’s turnaround in AUDUSD.


Source link  
The climate is changing rapidly

British people need to fly less, drive electric cars, eat little meat and turn their home thermostats down to 19 degrees Celsius (66 Fahrenheit) in order to rein...

Chinese stocks saw their worst week

Chinese stocks have taken investors on a ride this year. Shanghai and Shenzhen have been the best performing global markets this year, with the Shanghai...

Risk-sensitive currencies on the rise

Stock markets show growth after the release of strong data for China and Japan as their respective PMIs were better than expected which supported...


Trump again puts pressure on OPEC

President Donald Trump told OPEC on Thursday that its members should start pumping more oil, marking his second warning to the producer group this year...

Turkish lira fell by 5% before elections

The Turkish lira dropped by as much as 5 percent against the dollar on Thursday morning, as the country gears up for elections this weekend. The greenback...

May won't ask for a long Brexit delay

Prime Minister Theresa May won't ask the European Union for a 'long' delay to the Brexit deadline, her office said, after pro-Brexit ministers objected...


Demand for safe assets grows

Markets remain under moderate pressure, despite the Fed comments. Powell's semi-annual speech in Congress reinforced expectations that the US Central Bank...

US-China trade talks: deadline postponed

China's blue-chip index jumped more than 6% on Monday morning on news that Trump would postpone of the tariff's introduction. The U.S. President...

China buys American oil again

The first U.S. oil shipments to China in months will reach their destinations just days from now, punctuating a pledge by President Donald Trump in December that China would begin buying...

  


Share it on:   or