Fed Maintains Caution
The Fed largely refrained from voicing too much optimism after its first meeting of 2013. It was already difficult to do so in the wake of a surprisingly tame Q4 GDP report, which showed a slight contraction in the US economy. Nonetheless, despite acknowledging improvements in household spending, the FOMC noted growth would be ‘moderate’ at best. The decision ultimately failed to influence the dollar materially, and with the 10-year yield holding at around 2% in the aftermath of the decision it appears most asset classes maintain the status quo, at least until Friday’s payrolls release. Elsewhere, the RBNZ was slightly more hawkish than expected, voicing concerns over the housing market and household debt. However, the RBNZ also warned that the NZD was ‘overvalued’ and ‘undermining export profitability’. Containing credit growth is now taking precedence but the policy response may push NZD higher. For now, the RBNZ can only use rhetoric to calm proceedings. Overnight EURUSD traded 1.3560-1.3577 and USDJPY 90.75 – 91.16.
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UBS Investment Bank