Fed remain dovish – confirm potential end to quantitative tightening…
Yesterday’s meeting minutes from the Federal Open Market Committee’s last announcement displayed a central bank in a rather confused state. Putting things in perspective, at the December announcement, Fed Chair Jerome Powell, confirmed that the central bank’s balance sheet runoff (quantitative tightening – selling the bonds they purchased after the financial crisis) was on “autopilot”. Just over 2 months later the central bank have decided to potentially call it quits on this process by year end. As far as central bank U-turns go this is up there with the best, not far off when the European Central Bank increased interest rates just before Lehman Brothers collapsed in the 2008 crisis only to lower them within a month or so.
In essence, this move should be negative for the greenback but produced the opposite reaction. It appears the continued relative strength of the US economy, mixed with the yield benefit and reserve currency status have encouraged traders and dealers to hold onto their dollar long positions in the face of a dovish Fed. The GBPUSD pair, after reaching the $1.31 level, was pushed back down to the $1.30 mark where it currently lies.
Today’s trading session is a busy one. The morning sees a host of Eurozone PMI numbers for February. The afternoon is all about the US, we’ll have a raft of US numbers including manufacturing, services, housing and durable goods orders data.
Written by Viv Savani. 8:21am, February 21st 2019
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