18.09.2014 - The Fed announced the "exit strategy"
The price of euro fell yesterday after the Fed made a statement on the future of monetary policy in the country. Thus, it became known that in October the Fed will buy the assets for 15 billion dollars against 25 billion in the previous period and after that the program of quantitative easing will be completed. It was also announced the "exit strategy", which involves the use of deposit rate for of the banks' funds on the accounts of the Federal Reserve and the repo rate as tools to tighten monetary policy. In the Fed said that the timing of rate increases will depend on the economic situation in the country. Also yesterday was published data on the consumer price index in the euro area, which in August rose to 0.4%, against 0.3% in the previous month. The comparable figure in the United States for the month fell by 0.2%. Today we should pay attention to the data on the labor and housing markets in the United States (14:30 GMT). Our medium-term outlook for the euro remains negative with the objectives of 1.28 and 1.25.
The price of the British pound rose after the publication of minutes of the previous meeting of the Bank of England, and data on the labor market in the country, but after the Fed statement resumed a downward movement. Thus, two of the nine members of the Monetary Policy Committee of the Bank of England voted to raise interest rates by 0.25% to 0.75%. It should be noted that the level of unemployment in the UK fell by 0.2% in July, up to 6.2%, the lowest level since November 2008. Today we expect increased volatility due to a referendum on Scottish independence. In case if the country will remain a part of the United Kingdom, we expect strong growth of the pound. We are waiting for the results of the referendum and then we will review the medium-term outlook.
The Japanese yen continued to decline amid signals about future monetary tightening in the United States. We recall that ultra-soft policy of the Bank of Japan and its tightening is the main driver for the depreciation of the Japanese yen. Today has been published data on the trade balance in Japan, the lack of which was reduced to 0.92 trillion against the forecast of 0.99 trillion. Despite this, we expect further devaluation of the yen against the dollar in the medium term.
The price of the Australian dollar continued to decline and has overcome another local minimum of about 0.90. The reason for the decline was the strengthening of the dollar and low prices for major export commodities like iron ore. It is also worth noting the negative impact of the slowdown of the Chinese industry, which consumes the main part of Australian exports. We expect continuation of the current negative trend in the medium term with the objectives of 0.89 and 0.88.
The New Zealand dollar fell sharply yesterday due to the growth of the US dollar, but began to correct upwards after the publication of data on the growth of GDP for the second quarter. Thus, the figure was 0.7%, which is 0.1% better than analysts' forecast, but 0.3% less than the previous month. Despite this, the currency continues to be under the pressure of low prices for exports. In addition, the Reserve Bank of New Zealand stopped to raise interest rates, despite earlier plans. We expect a further decline of the New Zealand dollar in the medium term.