Back
17 Apr 2014
USD extending its decline - BTMU
FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UF, remarks the continuation of the weakness around the USD.
Key Quotes
"The US dollar has weakened modestly in the Asian trading session following a speech by Fed Chair Yellen yesterday to the Economic Club of New York which again highlighted that she remains one of the most dovish members of the FOMC. In the speech Fed Chair Yellen noted that during the recovery, “very high levels of slack have seemingly not generated strong downward pressure on inflation”."
"So even as slack continues to diminish it may well prove that inflation does not rise back towards their target as expected which is a development that the Fed must “watch carefully” as the progress of inflation “would figure heavily in our assessment of the recovery”. In clarifying the Fed’s updated forward guidance, Fed Chair Yellen also stated that “the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the fed funds rate is likely to be maintained”."
"Fed Chair Yellen reiterated again her view that there is still a lot of slack in the US economy. The negative impact of Yellen’s comments upon the US dollar has been only modest given that the market is already expecting only very gradual rate hikes in the years ahead."
"Ultimately, the incoming economic data will determine the timing and scale of Fed funds rate hikes in the years ahead. With inflation seemingly having bottomed in the US, it is likely that Fed concerns over low inflation will continue to ease going forward helping to support the US dollar. The recent pick up in inflation also raises questions over the need to continue with QE which was initially viewed as a policy to help combat deflation risks but may now be serving to increase financial stability risks by keeping policy too loose for too long."
Key Quotes
"The US dollar has weakened modestly in the Asian trading session following a speech by Fed Chair Yellen yesterday to the Economic Club of New York which again highlighted that she remains one of the most dovish members of the FOMC. In the speech Fed Chair Yellen noted that during the recovery, “very high levels of slack have seemingly not generated strong downward pressure on inflation”."
"So even as slack continues to diminish it may well prove that inflation does not rise back towards their target as expected which is a development that the Fed must “watch carefully” as the progress of inflation “would figure heavily in our assessment of the recovery”. In clarifying the Fed’s updated forward guidance, Fed Chair Yellen also stated that “the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the fed funds rate is likely to be maintained”."
"Fed Chair Yellen reiterated again her view that there is still a lot of slack in the US economy. The negative impact of Yellen’s comments upon the US dollar has been only modest given that the market is already expecting only very gradual rate hikes in the years ahead."
"Ultimately, the incoming economic data will determine the timing and scale of Fed funds rate hikes in the years ahead. With inflation seemingly having bottomed in the US, it is likely that Fed concerns over low inflation will continue to ease going forward helping to support the US dollar. The recent pick up in inflation also raises questions over the need to continue with QE which was initially viewed as a policy to help combat deflation risks but may now be serving to increase financial stability risks by keeping policy too loose for too long."