Filed Under:
Forex pairs in this Article » EUR/USD (Barcelona) - The latest U.S. Dollar selloff episode came courtesy of an article published late in the U.S. session by WSJ Fedwatcher Jon Hilsenrath, who threw some dovish remarks, including the consensus belief of Fed officials keeping its $85 billion-a-month bond-buying program next week meeting, also the possible discussion to revise guidance on rates.

Hilsenrath also said the Fed may decide to extend record-low rates for longer by lowering the threshold for rate hikes to around 6.0% from 6.5%. As a reminder, the Fed has reiterated in several occasions that it intends to keep rates close to zero at least until the unemployment rate falls to 6.5% or inflation pressures appear, setting a 2.5% annualized rate or higher.

According to Hilsenrath, "officials likely will debate changes to the way the central bank describes its plans for the program and for short-term interest rates." The Fedwatcher adds that "by telling investors that short-term rates will stay low for a long time, Fed officials believe, helps hold down long-term rates and that encourages borrowing, spending, investing and growth."

As a conclusion, Hilsenrath underlines the shift in perception by the market towards a rate increase being unlikely until 2015, noting, "as a result, officials might decide to avoid any change in their message and leave well enough alone for now."

One main takeaway from Hilsenrath article is, as pointed above, the dovish rhetoric used to express the possible communication strategy by the Fed next week. That on its own, has been enough to further rout the U.S. Dollar, as the market appears to continuously pricing out the 'dangerous assumption' of a 'Septaper'. EUR/USD, as an example, even with an ultra-dovish ECB, has made an impressive comeback to 1.33, just 1 cent shy from the 1.34 peak after Fed's first strong hints of taper.
comments powered by Disqus
Trading Center