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  
Markets recede from the recent highs

A strong Nonfarm Payrolls caused pressure on the stock markets, reducing the chances of the interest rates lowering by the Fed in the upcoming months...

Gold resumes rally, pushing past $1400

Gold prices resumed a push higher on Monday, as flows into the precious metal continued on improved prospects for easier monetary policy from...

Gold rises as markets slip

Market caution continues to support gold. Quotes of this metal rose to $1337, repeatedly trying to push above this year highs at the 1340-1360 area...


Trump says Brexit should happen

President Donald Trump promised the U.K. a "phenomenal trade deal" Tuesday, on the second day of his state visit to Britain...

Euro and Gold instead of Dollar

Gold rose on Monday to the highest levels since February, reaching $1327 per ounce. In the first hours of the Tuesday trading session, there...

Markets recover after the drop

The markets decline on investors' fears that trade conflicts will drag on and slow down demand, and this dynamic coincided with breaking through important...


Markets pressured by Huawei problem

Alphabet and some other American IT companies have suspended business with Huawei, which is one of the first examples of major consequences for...

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...

  


Share it on:   or