Prior to any announcement about the Fed stimulus meeting the foreign exchange market was alive with anticipation. The dollar index was steady, although the dollar was not moving very far from the low it hit on Monday. All expectations according to various news sources was for the Fed to announce a cutback on the stimulus. Even according to Reuters in Singapore and Tokyo their markets were waiting in anticipation of the end result of a two day meeting. For Asian currencies the USD moved from 80.968 to 81.312. It was a small move in comparison to other moves that have happened in the past. The USD gained a little back on expectation of good results from the two day meeting. Plenty of other things also affected the news and forex rates.
Foreign Exchange Moves on USA Data
The monetary policy talks were just the tip of the Empire State Building, so to speak. While much focus was on monetary policy with regards to foreign exchange other issues affected the USD on Monday and Tuesday. Lawrence Summers nominated for the Federal Reserve chair decided to take himself out of the running instead of staying in the race against Janet Yellen. The market exploded with surprise and a little worry since Yellen is not as gung ho about policy changes. Even though she is more cautious than Summers and Chairman Bernanke, there is still a widely accepted thought the USD will gain, tapering will happen, and her election will not impact the overall move of the market.
Talks for the two days of meeting are about more than cutting back stimulus of bonds. There is also interest rate talks in which they will increase throughout the next two years. All expected increases will be explored up to 2016 based on what the USA policy makers believe will be needed. For foreign exchange concern about rate hikes leads directly into the short term bond yields, since this is going to affect the dollar attraction. A faster rate increase usually means a better dollar. It would be a positive aspect for the USA since the ECB and BOJ are probably not going to tighten up their interest rates anytime soon. One expert believes there is enough evidence to show the world the dollar is going to gain in the coming years.
Foreign Exchange Awaits the Results
While waiting for the results much has gone on in foreign exchange for other currencies. Overall the yen, euro, and sterling have performed better in recent weeks than the USD. A lot of this is owing to the Syrian issue and the wait to see what the Fed will actually announce in terms of new policies and the cutbacks.
As the end of the year progresses there is also the potential for better job report data that will help the USD too. Sometimes waiting is the best thing to do in foreign exchange especially when the decision from a meeting is likely to impact all of the current trends. Depending on when this is read, it can be a great lesson for coming years or something to trade on in the following weeks for the long term trader.
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