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US QE budget at Status Quo. US Dollar slumps!

19th Sep 2013
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Well that was a surprise. The US Federal Reserve opted to leave their quantitative easing program in place. It is unusual for inaction to cause such significant reaction but that is what happened overnight. Bond yields plummeted, equities markets took heart from the news and the US Dollar took a pasting. So we start today with the Sterling - US Dollar exchange rate at the highest in the year, with the Euro  pushing the US Dollar to the highest exchange rate since February and with the USD weaker against everything else as well.

The Federal Reserve's decision was driven by "tightening financial market conditions” and “fiscal retrenchment” on real economic activity”. I love a bit of high-brow verbosity as much as the next man but a lack of lending and a lack of growth and investment is a much clearer explanation. This afternoon's business sentiment indices, housing market data and weekly jobless figures pale into insignificance compared to the market disappointment over the Federal Reserve's announcement but analysts will have licked their wounds by then so normal service will resume and the fact that the USD 'gapped' higher is also significant. What that means is that the exchange rates jumped and left gaps in the charts so the market is highly likely to reverse at some stage to 'fill the gaps'. 

There was other activity overnight which was largely lost in the USD melee. The New Zealand economic growth data was much better than expected (2.5% GDP growth compared to the average forecast of 2.1%).  The growth in the construction sector was so solid as to offset the effects of the worst drought in 30 years.  So while the US Dollar was weakening, the NZ Dollar strengthened across the board.

Other than the US data mentioned above, today's data diary is heavily weighted towards the UK. US data includes retail sales numbers and the CBI industrial trends survey. Both are expected to be Sterling-positive so be ready for that push.

From the Eurozone we get what will undoubtedly be another poor set of Greek unemployment figures. The headline unemployment rate was 27.4% last month and that could well have declined since then. The Euro is being flattered by the weakness in the US Dollar but is as flat as a pancake in its own right.
 

Article supplied by David Johnson, Director at Halo Financial - Currency Specialists

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