Dollar jumps on hawkish elements of Fed statement

 

Advertisement

Share |
14/10/29  NEW YORK - The dollar Wednesday jumped against the euro and other major currencies after the US Federal Reserve ended its quantitative easing stimulus programme and described labor market conditions as improving. Near 1810 GMT, the euro fell to $1.2660, much below the $1.2743 shortly before the Fed s 1800 GMT statement. The dollar also rose sharply against the Japanese yen, the Swiss franc and the British pound. The Fed, as expected, declared the end of a six-year-old quantitative easing program, which last December stood at $85 million a month in asset purchases and has been progressively trimmed. The Fed also said it would not raise interest rates for "a considerable time" after the end of the QE program, sticking to its timetable of an increase well into 2015. But analysts said the Fed s policy statement included some important shifts in language that were more hawkish than expected. The Fed, which has long emphasized the need for a stronger jobs market, on September 17 said "there remains significant underutilization of labor resources." Wednesday s statement from the Fed s Federal Open Market Committee dropped that characterization and said indicators suggest "that underutilization of labor resources is gradually diminishing."

Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, rated this "very marginal shift in language" as "a bit of a hawkish surprise to global investors, who were expecting no changes to the language."

Esiner said the Fed s statement that longer-term inflation expectations "remain stable," also suggested it is not concerned about lower prices. The risk of deflation has long been a Fed worry.

"On balance, the communique sounded a slightly more hawkish tone than many had expected and resulted in a significant move higher in yields and the US dollar.