Dollar's post FOMC decline extends further in Asia today with EUR/USD trading firm above 1.31 level. DOW managed to ride on Fed's intention to keep rates low until late 2014 and staged a strong rebound to close up 81pts. However, such optimism doesn't carry on to Asian markets as major indices are mixed with Nikkei down -48pts. But dollar's weakness is clearly felt in commodity markets with gold holding firm above 1700 while crude oil is also trading above 100 psychological level. The CRB commodity index also managed to break through January's high extend recent rebound. As noted before, dollar index's break of 79.51 support confirmed at least near term topping and more downside would likely be seen in the greenback ahead.
The Fed delivered a dovish policy statement yesterday, stating the Fed funds rate will stay at exceptionally low level 'at least through late 2014'. There were two other notable changes made at the meeting. First, the Fed released interest rate projections of participants. Second, the central bank released a statement on its longer-run goals and strategy, indicating a 2% long-run target for the PCE deflator. The dovish tone of the statement and the press conference was a reflection of the highly uncertain global economic outlook which was supported by FOMC's downward revision in growth forecast over the next three years. We retain the view that the Fed will implement QE3 in the second half of this year, after completion of operation twist. More in Fed Keeps Interests Low At Least Until Late 2014.
Also, more on Fed:
- FOMC: Why The Recent Past Seldom Predicts the Future
- FOMC: Fed on Hold Till Mid-2014
- U.S. Fed Says Low Level Funds Rate Likely to be Warranted "Through Late 2014"
- FOMC Extends Dovish Forecasts
- USD Slides Sharply as FOMC Extends Pledge to Hold ZIRP Through Late 2014
At today's meeting, the RBNZ left the OCR unchanged at 2.5% and signaled that the pause might be longer than previously anticipated. Despite the seemingly more dovish statement, policymakers saw some improvements in household spending and the housing market. Policymakers believed it's prudent to keep the OCR on hold at 2.5% but the words 'for now' were removed in the statement this time. This probably signals that interest rates will stay at current level longer than previously expected. More in RBNZ Intends To Pause Longer.
After these two central bank meetings, focus will turn back to situation in Greece for the rest of the week. Greece has resumed talk with private creditors yesterday on the bond swap deal. Greece spokesman told press that the government targets to complete the negotiation by the end of the week. IIF head Dallara said the latest discussions would be aiming at sorting out all legal and technical issues. However, it remain doubtful on how the final plan would be, in particular on the coupon rate on the new bonds that Greece would swap out for the current debts. EU has been playing an hard ball game on the insisting yield at 3.5% until 2020 and below 4% over the 30 years period. Meanwhile, it's also reported that ECB has ruled out taking losses on Greek bond holdings voluntarily. It's estimated that ECB is holding around EUR 40-50b of Greek bonds and argued that it should be treated differently from private investors as the bonds are purchased through the emergency program. Also, there are speculations that ECB's Greek would be passed to the bailout funds.
On the data front, Japan corporate services price index rose 0.1% yoy in December. German Gfk consumer sentiment, UK CBI reported sales will be released in European session. From US durable goods, jobless claims, leading indicators and new home sales, will be released. And, main focus would be on whether initial jobless claims could stay at around 350/360k level.