Fed to Continue Mortgage Backed Securities Program
On Wednesday (Sept. 23rd) the dollar hit a new low against the euro and declined against the Japanese yen after the US Federal Reserve said in a statement that the US economy is recovering and that the Fed will continue, but slow, the purchase of mortgage backed securities. As expected, the Fed will keep rates at near zero for an extended period of time. Dan Cook of IG Markets in Chicago stated, “This continues the theory of ‘green shoots. We didn’t get anything from them today that will change direction.” Cook also stated that the Fed’s decision to prolong the Mortgage Backed securities program was widely expected. Cook said, “They don’t want to shock the market just by stopping them.”
Risk Appetite Spurs Dollar Selling
The euro was up 0.2% and traded at $1.4842 after reaching a high of $1.4842, the highest since September 2008. The dollar vs. yen rate fell 0.1% to 91.04. The dollar index, or DXY, which tracks the dollar against six other major currencies, fell 0.2% to 75.981.Currency traders are selling the dollar in favor of higher yielding assets and currencies. After the Fed statement many forex traders expect dollar selling to continue. Michael Woolfolk of BNY Mellon stated, “We see just some fine-tuning of the economic outlook. And now that the risk of the Fed meeting has passed, people are comfortable returning to the trend of selling the dollar. That’s the bottom line.”
Global Stocks Up
World stocks hit their highest in nearly a year and both European and Asian shares were up prompting a rise in risk appetite among investors. On Tuesday U.S. Treasury Secretary said that the US economy was at the “beginnings” of recovery and that the key to recovery is to ensure that any recovery is self sustaining. Some investors remain cautious in advance of the G 20 meeting later this week in Pittsburgh. Most currency traders do not expect the G 20 summit to disrupt current positive trends. Ian Stannard of BNP Paribas said, “Overall the FOMC and the G20 are unlikely to disrupt the recent positive tone in asset markets and that’s likely to see the trends in currency markets resume.”
