The US dollar fared well throughout the day yesterday, ahead of last night’s events with the Federal Open Market Committee (FOMC) meeting. The US currency made gains against the majority of it most-traded partners, thanks to optimism that the Federal Reserve would continue to reduce their quantitative easing. The majority of investors felt that the pattern of the last two meetings would be continued, by cutting the monthly bond-buying amount by a further $10 billion. This would have the effect of strengthening the dollar. The FOMC duly delivered by tapering by a further US$10bn but there was a surprise when Janet Yellen predicted that interest rates would be higher than forecast at the end of 2015 by 0.25% at 1%. Not a huge difference but significant in terms of how they thought capacity in the US economy was less than expected and we saw an immediate appreciation in the dollar against both sterling and the euro.
Today, there is a trio of significant releases stateside, starting with important labour data in the form of unemployment claims. This is followed then by existing home sales and the manufacturing index from the Philadelphia Federal Reserve. These, in conjunction with the on-going reaction to last night’s events, will govern the dollar’s day.
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