
The Federal Open Market Committee (FOMC) statement yesterday was
interpreted, on balance, as painting a picture of the US economy as
one that is on the road to recovery. This means that tapering, or an end to
Quantitative Easing, is now seen as being closer in time than was previously
the case.
During his press conference after the Fed meeting on 18th
September, Mr. Bernanke signalled that the then upcoming debt ceiling debate and
possible government shutdown was a concern for the committee. It was
represented as one of the major factors in deciding to make the surprise
announcement that tapering was being postponed. Now it seems that the debt
ceiling debate has faded as an issue. There was no mention of it at all in
yesterday’s release.
The next major item on the radar for Fed watchers is the October Non-Farm
payroll report, which is itself delayed until November 8th, having
been originally scheduled for tomorrow, November 1st. Normally, a
low figure, below 150,000 new jobs, would have the effect of weakening the US
dollar. On this occasion, a relatively low figure has the potential to be explained away
as a one-off because of the government shutdown, while any larger number will
gain additional significance precisely because it will be seen to have occurred
in spite of the fact that so many Federal offices were closed in early October, and the uncertainty this caused might have impacted on private sector employment.
For all these reasons we are tending to be bullish on the US dollar in
the weeks ahead. Gold, in particular, took another hit after the FOMC statement
was released yesterday. The Euro seems to be on the turn, the USDJPY pair is indicating
a climb out of the tip of the pennant we highlighted yesterday
and the Aussie continues the retreat that started when the Reserve Bank of
Australia (RBA) let it be known that, in their estimation, its value was too
high to be good for the Australian economy.
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