FOMC Decision Approaches
Surprisingly-strong US earnings reports released after the NY close generated an upbeat tone in Asia, allowing the Australian dollar to claw back all losses it has suffered since Tuesday’s soft CPI reading. Asian equities also got a boost, and USDJPY is still looking firm ahead of tonight’s Fed policy announcements. There are three FOMC-related events to watch out for. The policy statement will be published first, but our US economists doubt the Fed will alter its view that “economic conditions…are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.” Ninety minutes later the quarterly forecasts may show some modest upward revisions to inflation and growth projections, and some Fed officials may even forecast an earlier start to policy normalization. Fifteen minutes after that Chairman Bernanke’s press conference begins, where he is tasked with presenting the FOMC’s opinion and not his own view in particular. We do not expect him to signal additional easing is on the way – whether through additional balance sheet expansion or through an extension of ‘Operation Twist’ beyond the June deadline. USDJPY is likely to be very sensitive to the outcome but we think upside risks for the pair still dominate – especially with the BoJ likely to ease further still on Friday. We stick to our 3m USDJPY target of 85.00. The FOMC aside, UK GDP is out too, but we expect the RBNZ’s policy meeting to be largely a non-event for the New Zealand dollar.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank