Fed Keeps Rates Unchanged - 14.12.2011
US Dollar
The dollar rocketed yesterday against all its major counterparts after the Federal Open Market Committee published its post policy meeting statement. According to the statement all the members of the Committee but one voted to keep the target range for the federal funds rate at 0%-0.25% and add no stimulus measures as “the economy has been expanding moderately, notwithstanding some apparent slowing in global growth,” while “inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable.”
At the same time the Committee decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The greenback appreciated and the dollar index rose above 80 for the first time in 11 months. US stocks on the other hand were mainly lower yesterday – S&P 500 lost 0.9% as a retail sales report turned out to be an exception in a series of favorable macroeconomic reports. Purchases in November increased 0.2%, while economists predicted on average a 0.6% gain.
Euro
The euro fell to an 11-month low against the US counterpart (1.3008), to a 10-week low against the Japanese yen (101.46) and depreciated against the Swiss frank. The single currency has become less attractive for investors after the ECB lowered interest rates last week and after international rating agencies said the efforts of the European leaders are not sufficient to improve confidence so that the region’s debt crisis is far from resolution.
The single currency may have more downside potential in case it falls below the 2011 low – 1.2873. As soon as today investors may judge whether European authorities have made enough progress in curbing the crisis – according to Bloomberg, Italy is scheduled to auction as much as 3 billion euros of debt maturing in 2016 today, while Germany plans to sell 5 billion euros of two-year notes. Spain will offer debt maturing in 2016, 2020 and 2021 tomorrow.