The U.S. Dollar rallied the most in close to one month after the Federal Reserve concluded its two-day meeting by announcing that it is putting an end to the monthly asset purchasing program known as quantitative easing. The FOMC stated that the decision was supported by signs the employment sector has improved. The greenback rallied against most of the majors, including safe havens as investors speculated that the central bank won't raise the borrowing costs before September of next year. The Fed indicated that the benchmark interest rate would be left at the current low for a "considerable time." It did not provide clues on what that means; and rather than emphasize on the risks that long-term inflation faces in light of the present low levels of inflation, it focused on the progress that the jobs' sector has sustained. In a statement delivered in Washington, D.C. the central bank indicated that conditions in the employment market have continued to improve; there's been positive creation of payrolls and a decline in the unemployment rate. The indicators all highlight the fact that "underutilization of labor resources" is dissipating. On the data front, the Commerce Department divulged that Gross Domestic Product rose at a 3.5 percent yearly rate in the third quarter, after rallying 4.6 percent in the months of April to June. The Labor Department reported that the one-month average Unemployment Benefit Claims slipped to 281,000 in the week that concluded on October 25th, marking the lowest posting since 2000. The prior week, Claims printed at 281,250. However, this past week, applications went up by 3,000 to 287,000. The greenback erased some of its prior gains a day after the Federal Reserve dismissed any comments about a global economic slowdown and emphasized on the "solid" employment creation the U.S. has shown.
And as the Fed ended the quantitative easing program, Gold Prices plunged by the most in three weeks. Sources say that demand for the shiny metal will continue to fall as investors don't normally seek harbor assets to protect wealth when there's low inflation. Bullion for immediate delivery fell 1.4 percent to $1,211.68 an ounce in the afternoon hours of Wednesday in New York City. Futures for December delivery dropped by 1.93 percent to a low of $1,201.20 a troy ounce, the lowest price since the beginning of October. Policy makers stated that inflation may decline as energy prices continue to fall; however, they reiterated that the likelihood the inflation levels will post constantly below the 2 percent target has declined.
The Euro retreated from more than a three-week low versus the stronger greenback once Spain announced that its economy grew in the months of July through September, and Germany stated that the number of unemployed individuals fell in the month of October. The British Pound erased some of its gains against the U.S. Dollar following bearish comments by Bank of England officials. In addition, Prime Minister, David Cameron has intimated that he will move towards an anti-Euro-zone platform as he prepares for next year's elections. The central bank has reiterated that it will have to monitor inflation before deciding on whether to raise the borrowing costs or continue with the status quo.
The Yen slipped versus the Euro and the U.S. Dollar as investors waited for the Bank of Japan's policy meeting to conclude. Analysts are uncertain as to what the policy makers will do since Industrial Production posted better than anticipated, and Retail Sales rose in September. Sources say that the monetary authorities may use a more moderate tone when speaking about inflation.
The Australian and New Zealand Dollars slipped versus their U.S. counterpart as demand for the latter increased. It appears that trading experts have given investors the thumbs up to purchase Dollars, now that the Federal Reserve wound down the asset purchasing program. On the domestic side, Australia reported a price decline of 0.8 percent in Imports, disappointing speculators who anticipated an increase of 0.3 percent. And in New Zealand, the Reserve Bank left the key cash rate unchanged, just as economists predicted.
EUR/USD- Spain Takes Markets By Surprise
The EUR/USD gained as Euro region releases indicated that the number of unemployed individuals in Germany went down by 22,000 in October, beating expectations for an increase of 5,000. Furthermore, the nation's rate of unemployment stayed at 6.7 percent. In Spain, the news revealed that the country's economy expanded 0.5 percent in the third quarter, and on a year-over-year basis, it grew 1.6 percent. Separate announcements divulged that inflation printed below zero, dropping from a reading of 0.2 percent in September. The Euro remained weaker than the greenback despite retreating from a prior low as reports showed that economic sentiment is up in the Euro-zone. According to the European commission, the index which gauges consumer confidence went from 99.9 to 100.7 last month. This, analysts say, may help the region regain in the area of production since a hike in confidence means that businesses won't delay their plans to invest. The E.U.'s economy did not show growth for the second half of the third quarter, and Mario Draghi, the central bank's president stated that if prices stay to the downside, spending could be affected. A survey showed that Gross Domestic Product went to 0.2 percent in the months of July through September. The releases also pointed to a surge in Industrial Confidence to -5.1 in October, after coming in at -5.5 in September. In addition, confidence in the Retail and Construction sectors increased. But on the negative side, business confidence fell for a sixth month in a row, and investor confidence now stands at the lowest level in two years.
GBP/USD- Mortgage Approvals Drop
The GBP/USD traded lower as the Federal Reserve announced the end of the bond-purchasing program. In the U.K., Mortgage Approvals posted at the lowest level in fourteen months, signaling further than the real estate market has lost momentum. Loan approvals dipped from 64,054 in August to 61,267 in September, the least since summer of 2013. The Bank of England indicated that loan approvals have been declining since the start of the year when they surged to the highest level in six years. But the central bank has instituted more rigorous lending measures, and this has made it possible for the housing sector to slow to a sustained pace. In addition, lending to businesses went down. The release indicated that Consumer Net Borrowing jumped 2.7 billion Pounds, a drop from the previous month's 3.2 billion. Separate announcements revealed that consumers expect inflation to stay at 1.9 percent in the next twelve months. And Inflation expectations for the upcoming five to ten years dipped from 3.0 to 2.9 percent.
NZD/USD- Interest Rates On Hold
The NZD/USD dropped to a one-month low after the Reserve Bank of New Zealand announced its decision to leave the costs of borrowing money at 3.50 percent while signaling that the key cash rate would be left unchanged for some time to come. Bank officials indicated that inflation remains an issue while the currency is still "unjustifiably high." Policy makers would like to have a period in which to reassess any adjustments. Graeme Wheeler, the central bank's governor released the statement in Wellington, but refrained from saying that the bank anticipates tightening policy. The NZD/USD remained to the downside as investors speculated that the bank won't boost the borrowing costs as low levels of inflation may persist. Mr. Wheeler indicated that the economy has adjusted to the steps taken by the central bank over the last twelve months. What troubles policy makers is that government releases showed that the Consumer Price Index climbed 1 percent in the third quarter. This is less than the forecast 1.3 percent in the September statement. But Mr. Wheeler is optimistic that Inflation will rise as the economy continues to grow.
USD/JPY- FOMC Benefits Dollar
The USD/JPY soared after the Federal Reserve confirmed that it was putting an end to quantitative easing. The central bank issue statements that were rather optimistic, suggesting that the world's biggest economy is on solid footing and interest rate hikes may come in the future. Japanese reports issued a few days ago revealed that Industrial Production climbed more than anticipated last month, and Retail Sales surged. Analysts believe that the positive metrics could prompt the Bank of Japan to leave stimulus unchanged. But the numbers may not turn out to be the catalyst that moves policy makers to act. Investors are keeping a close eye on Prime Minister, Shinzo Abe, who has been advocating for another sales tax increase. Many anticipate that he will move ahead with the plans in the coming year, and the central bank may have to implement new stimulus measures to counteract the negative effects given the fact that the economy remains very fragile. In addition, the Standard & Poor's is considering reducing the country's credit rating and will go ahead with it should the government raise the sales tax to 10 percent. Takahira Ogawa, who heads the Sovereign Ratings Department of the S & P intimated that Japan would have to reduce welfare spending and make additional structural reforms if it decides to delay the sales tax hike.
Today's Outlook
Today's economic calendar reveals that Japan will issue the Interest Rate Decision, and data on Construction Orders and Housing Starts. The Euro region will report on German Retail Sales, CPI, Core CPI, and the Unemployment Rate. The U.S. will publish the Core PCE Price Index, the employment Cost Index, Personal Spending, Personal Income, Chicago PMI and Michigan Consumer Sentiment. Lastly, China will announce Manufacturing PMI.