Market Review – 16/03/2010 22:52GMT
Dollar slides broadly as Fed vows to keep rates low for an ‘extended period’
The greenback weakened against most major currencies on Tuesday after the Federal Reserve kept U.S. interest rates unchanged at 0.25% and reiterated to maintain rates ‘exceptionally low’ for an ‘extended period.’ Policy makers began using the rhetoric ‘extended period’ in March 2009 and have repeated it at each meeting since then. Downbeat comments in the Fed’s policy statement on the U.S. housing and employment sectors have also been the factors that pressured the greenback after the FOMC meeting.
For the single currency, the focus in Asia and Europe continued to be whether Greece would receive bailout money from Germany and France. Uncertainty existed before clarification of details from EU finance ministers meeting in Brussels and the FOMC statement. Euro hence tumbled to as low as 1.3657 at European opening. However, the pair found support there and staged a strong rebound. Euro picked up more upward momentum and surged to 1.3771 after the release of German and eurozone economic data. German ZEW economic sentiment index in March came in at 44.5, higher than the economists’ forecast of 43.5. Eurozone consumer inflation rose by 0.3% m/m n 0.9% y/y in February respectively after a decrease of 0.8% m/m n a rise of 1.0% y/y in January. Despite a brief dip to 1.3717, renewed buying lifted the single currency after Fed kept rate unchanged and price rose to an intra-day high of 1.3784 before stabilizing in NY afternoon.
Early in Asia the greenback slipped against Japanese yen on further corporate repatriation and cross buying in yen due to risk aversion. The pair fell to as low as 89.97 in Asian mid-day before staging a rebound. In European mid-day the price rallied to an intra-day high at 90.74 on concerns that the Japanese government may begin implementing a plan to ease the rise in yen. However, the pair met selling pressure there and tumbled towards around 90.25. Despite a brief pullback to 90.70, as the Federal Reserve kept U.S. interest rates unchanged at 0.25% and reiterated to maintain rates ‘exceptionally low’ for an ‘extended period’, the pair nose-dived to around 90.16 before stabilising in New York afternoon.
Although cable tumbled to 1.4977 at European opening on active buying of eur/gbp, short-covering lifted the pound from there. Cable has traded with a firm undertone for the rest of they day on broad-based weakness in dollar and price rallied to 1.5260 after FOMC announcement.
Economic data to be released on Wednesday include Australia Westpac leading economic index, Japan industry index, BOJ rate decision , U.K. Claimant count, unemployment rate, average earning, E.U. labour cost, U.S. PPI and wholesales sales.