Wednesday, 12 Aug 2009

Reaction Muted to FOMC Statement

The Federal Reserve statement failed yet again to provide a clear direction to markets, showing only a very subtle improvement in policymakers' views of the economic recovery. As expected the interest rate remained unchanged with no indication of change in policy in the near future. The biggest revision in the Federal Open Markets Committee's latest statement is it now sees "economic activity leveling out”, a change from last month's “slower pace of contraction”. Furthermore the Fed decided to stretch out the expiration on its Treasuries purchase program by a month, to end-October. The Fed gave no timeline on exiting from its quantitative easing program.

While the knee jerk reaction was bullish on the Dollar, after the markets cooled off this trend reversed and riskier currencies were able to recover their gains made throughout the day following a rally in stock markets.

Tomorrow is expected to be another heavy news day, with several major news releases from the U.S and Europe, including the U.S Core Retail Sales and Unemployment Claims at 12:30 GMT, and the German Prelim GDP at 6:00 GMT.