FOMC minutes reaffirm Fed commitment to QE to further recover US labour market

Tom Tong11/Apr/2013Currency Updates

GBP

Sterling moved sideways against the dollar yesterday but it increased slightly over the euro as good sentiment by market participants in the British pound is continuing after solid industrial and manufacturing output increased the probability of the UK avoiding a triple-dip recession.

The pound also rose to a three-and-a-half year peak against the yen, as the Japanese currency continued to suffer in the wake of last week’s radical monetary easing measures announced by the Bank of Japan’s Chief, Kuroda.

As no impacting macro data from the UK is released until the beginning of next week, it’s likely to observe a continuing uncorrelated performance from sterling crosses like yesterday, since market participants are far more concerned from European troubles and the maintenance of QE3 from the Fed.

EUR

The euro dropped yesterday against the majority of its counterparties, except against the weak Japanese yen. There was little news flow and not much on the data side as markets waited for the FOMC minutes released later in the trading day.
Finnish Finance Minister Jutta Urpilainen said eurozone finance ministers may make some changes to Cyprus bailout program as it is struck a deal with international lenders to receive a 10 billion euro loan, in return for slashing its dominant banking sector and hitting large depositors with heavy losses.

The ECB Monthly report is the most important event risk of the day within the eurozone, as it states a detailed analysis of the prevailing economic situation regarding growth and inflation. Another one to take into account is the German Consumer Price Index (YoY) of March, which is expected to show 1.4% from a previous 1.5%, meaning domestic demand is remaining weak; even in the better performing economies within the euro-region.

USD

A quiet session yesterday produced sideways trading in the US dollar Index before the Federal Open Market Committee members spoke relating to the economic situation of the US, which created some volatility but the index remained close to its moving average price. A 10-Year Note Auction had a good demand dropping yields to 1.795% from its previous 2.029%.

The FOMC showed an analysis of the outlook for labour market conditions improved as anticipated, and therefore it’s likely to slow purchases later in the year and to stop them by year-end, agreed Fed officials, who debated how and when to shorten asset purchases that have increased its balance sheet to a record 3.22 trillion dollars. Still, Chairman Ben S. Bernanke decided they will continue with 85 billion monthly bond buying until the labour-market outlook has improved substantially.
Despite the dismal non-farm payroll number of two weeks ago, today markets expect a drop in the Initial Jobless Claims April report to 365K from its previous 385K; as so, the majority of the market analysts and Fed members are still bullish in a consolidated US economy recovery through.

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Written by Tom Tong

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