The market remained calm and expected the Fed to stay put, at least for a while, and wasn’t surprised. The Fed not only didn’t change any parameters of the policy – which was in fact obvious, but nearly copy pasted the previous communiqué. The most important sentence of the statement that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period” seems to be safe and sound. Before it is changed, it is hard to expect changes to policy parameters in a foreseeable future. The first paragraph was slightly reworked but its meaning is basically the same and certainly far from Bernanke’s optimistic declaration. One noticeable change referred to the expiration of the interventions on the mortgage debt market but if anything – it was dovish. The program will be executed by the end of the first quarter of 2010, while the market took into the account a scenario in which all Fed’s programs are done by the end of this year.
A reception of the statement was the most apparent in the 12X15 FRA contracts for USD (representing expectations regarding the 3-months LIBOR in a year’s time) which went down by 7 bp yesterday and 13 bp within the last two days. Despite some hesitation on the EURUSD and USDJPY right after the meeting, its result is clearly negative for the dollar. It is worth to notice that the market speculated against the dollar before the release of the statement and no intention to tight credit conditions in the US is certainly a factor that might reinforce those tendencies.
|
Przemysław Kwiecień  |
 |
