Market Review – 14/12/2010 21:40 GMT
Dollar edges up versus yen after Fed reaffirms QE
The U.S. dollar rose against the Japanese yen after the U.S. Federal Reserve reaffirmed its commitment to purchase $600 billion in bonds to bolster economic growth and create jobs.
The U.S. Federal Reserve said after the 1-day FOMC meeting that economic recovery was continuing but at a rate insufficient to lower unemployment. Fed repeated it intended to purchase $ 600 billion of longer-term Treasuries by the end of 2011 Q2. Longer term inflation expectations remained stable, unemployment elevated, business spending rose less rapidly than earlier in the year, employers were still reluctant to add to payrolls. Fed keeps Fed funds rate in zero to 0.25% range as expected.
The greenback fell from 83.55 against the Japanese yen and tumbled to 82.83, however, the pair rebounded strongly from there and rallied to 83.78 in NY after the FOMC meeting. U.S. benchmark 10-year Treasury notes yield rose fm 3.28% to 3.40% while prices of Treasury securities remained under pressure.
The dollar was also supported after the release of much stronger-than-expected U.S. retail sales data which rose by 0.8% m/m in November versus the economists’ forecast of 0.6% rise. The core retail sales also increased by 1.2% against the expectation of 0.6% rise.
The single currency initially traded narrowly in Asia after the rally in the previous session, later euro rose above Monday’s high of 1.3434 and reached 1.3500 in European session, however, profit-taking offers sent the pair sharply lower and euro fell to 1.3362. Euro staged a brief recovery after the FOMC meeting but then traded with a soft bias in NY afternoon.
Despite the British pound’s early sideways movement in Asia, cable later rose above 1.5898 and reached 1.5911 in Europe, however, the pair then retreated and tumbled to 1.5739 in NY session before staging a recovery.
In other news, The Bank of England policymaker Andrew Sentance said after data showed inflation hit a 6-month high in November that BOE should start raising interest rates to boost its inflation-fighting credibility. U.K. CPI rose by 0.4% m/m and 3.3% y/y in November whilst U.K. RPI rose by 0.4% m/m and 4.7% y/y respectively.
Economic indicators to be released on Wednesday include:
Japan Tankan capex, UK jobs data, Swiss ZEW, US CPI data, real earnings and industrial production data.