The dollar surged after a slightly hawkish statement The Federal Reserve officially announced an end to its QE3 program, as was widely expected, and expressed confidence that the US recovery remained on a stable path. In the statement following the two-day meeting, the Fed dropped the characterization of the US labor market slack as “significant” and appeared confident in the economy’s prospects. The Committee retained however the phrase to keep interest rates near zero for a “considerable time”, following the end of its asset purchase program this month. They noted though, that this should happen especially if projected inflation continues to run below the Fed’s 2% target. Nevertheless, the Committee suggested that if incoming information indicates faster progress toward the Fed’s employment and inflation objectives, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.
The FOMC statement strengthened the greenback against all of its major peers and pushed the DXY index to an almost four-week high. I believe that the dollar probably ended its corrective phase and following the positive statement it should regain its glamour boosted by the relative strength of the US economy and that the policy divergence driving USD strength still exists.
The USD gained the most against the New Zealand dollar, which tumbled after the Reserve Bank of New Zealand kept its official interest rate at 3.5%. Yet, the Bank pointed to remain on hold before considering any changes. In the statement accompanying the decision, Governor Graeme Wheeler removed the phrase “we expect some further policy tightening will be necessary”, which gave no indication when the Bank might consider raising rates again. This pushed expectations for the next rate hike out to late next year. The RBNZ Governor repeated, that high NZD remained "unjustified and unsustainable". Bearing this in mind, I would expect the “on-hold” stance of the RBNZ to weigh on the Kiwi, especially against its US counterpart.
As for today’s economic indicators, the preliminary German CPI for October is forecast to accelerate to +0.9% yoy, from +0.8% in September. As usual the drama will start several hours earlier when the CPI for Saxony is released ahead of the country’s headline CPI. Market consensus of a rise in the inflation rate could strengthen somewhat the EUR. The country’s unemployment rate for October is also coming out. In Eurozone, final consumer confidence for October is anticipated to remain unchanged from its September’s print.
In the UK, the Nationwide house price index for October is coming out.
From the US, we have the 1st estimate of GDP for Q3 which is expected to show a rise of +3.0% qoq SAAR, down from +4.6% qoq SAAR in Q2. The 1st estimate of the core personal consumption index, the Fed’s favorite inflation measure, is forecast to have declined from the Fed’s 2% target. The softer growth could be offset by the lower fuel prices and the US could stay on a positive path, although at a slower pace. On the other hand, the ease in inflation rate could add to worries over the US recovery. Initial jobless claims for the week ended Oct.25 are also due out.
In New Zealand, building permits for September are forecast to accelerate, following a stalled activity in the previous month.
As for speakers: Fed Chair Janet Yellen speaks but she is not expected to take any questions and ECB Governor Luis Maria Linde also speaks.