Forex Trading: Currency Briefing – Taper should continue: FOMC’s Fisher
Markets enter the new week in optimistic mode after Fed chair Janet Yellen on Thursday last assured the US Senate of continuity with her predecessor’s dovish monetary policy. Yellen didn’t add anything to what the markets already knew, indicating that tapering will continue for as long as data supports it and that interest rates will remain low for an extended period, near convergence with the 6.5 per cent unemployment threshold notwithstanding.
But that data has been far from consistent or comforting of late, with readings below expectations in employment, trade balance, manufacturing indexes and retail sales among others. The picture is of US economic growth stalled in Q1 and the Fed may choose to stay its hand at the March meeting of the Federal Open Market Committee.
Early reports for January suggest that bad weather disrupted the operations of manufacturers, with the prospect of carry-over into February. The Empire State measure produced by the New York Federal Reserve Bank is expected to fall to 10 from 12.51 in the prior month, according to an economist poll.
That report is due tomorrow. Weakness in a similar manufacturing report issued on Thursday by the Philadelphia Fed might also have been weather-induced but is a frigid United States winter causing or only exacerbating a tepid economic recovery?
In an interview with Bloomberg Radio, Dallas Fed President Richard Fisher noted recent signs that the economy was losing momentum with the latest being a 0.3 per cent drop in industrial production in January, the first since July. “Obviously weather is playing a significant role here,” Fisher said, but he added:. “The economy has been moving in the right direction and I am not dissuaded… that continuing to taper should be altered.”
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Janet Yellen signaled on Tuesday last week, during six hours of testimony before the lower house of the Congress, that the Fed would stay the course in reducing the pace of asset purchases, now trimmed to $65 billion a month.
In the United States today, markets are closed for Presidents’ Day. The holiday falls on the third Monday of February in recognition of the birthday (actually on 22 February) of George Washington. Markets will thus remain in low-liquidity mode until tomorrow.
The only event of significance today is the Eurogroup meeting in Brussels, to be attended by the group president, the finance ministers of the Eurozone countries, the EC commissioner for economic and monetary affairs and the president of the European Central Bank. The ad hoc Eurogroup aims at close coordination of economic policies within the euro area.
The euro rose to three-week highs against the dollar on Friday as stronger than forecast Eurozone fourth-quarter growth data bolstered the outlook for recovery in the bloc. The EUR/USD hit 1.3715, its highest level since January 27 and finished the week 0.35 per cent up. The currency pair is likely to find support at 1.3540 and resistance at 1.3775, the high of January 2.
*Editing by Frank Quin*