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Federal Reserve Leaves Interest Rates Unchanged, Maintains Monthly Asset Purchases

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  • Fed's Powell: - No sense of panic in regard to inflation - I do not believe wage increases are causing price inflation
  • Fed's Powell: - High inflation prints not "what we were looking for" - Spike in inflation driven solely by supply side shock
  • Fed's Powell: - We expect RRP activity to remain elevated - Repo facilities performing as expected
  • Fed's Powell: - MBS and tapering were brought up by a number of FOMC participants - We will taper both (MBS & Treasuries) at the same time most likely
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  • The July FOMC press conference is hammering home this point: the labor market mandate is now on equal footing with the inflation mandate (which is atypical); and Powell is now making the case that the labor mandate is *more important* to normalization than the inflation side. https://t.co/saAmTwpTRw
  • Fed's Powell: - Fed has not made a decision on when taper will commence - Variety of opinions with in the Committee on when tapering should begin
  • Fed's Powell: - Transitory means not impacting longer-run inflation patterns - We must be extremely careful when it comes to the inflation mandate
Dollar, Yen May Fall Further as EU Leaders Turn to Growth Agenda

Dollar, Yen May Fall Further as EU Leaders Turn to Growth Agenda

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Dollar, Yen Drop as EU Anti-Crisis Measures Top Market Expectations
  • Aussie, NZ Dollars Outperform Amid Broad Recovery in Risk Appetite
  • Sentiment to Maintain Support as EU Leaders Turn to Growth Agenda

The US Dollar and the Japanese Yen slumped overnight after EU leaders delivered an unexpectedly forceful response to the region’s debt and banking crisis following the first day of negotiations at a summit in Brussels, boosting risk appetite and sapping demand for the go-to haven currencies. The stocks-linked Australian and New Zealand Dollar outperformed adding as much as 1.6 and 1.4 percent respectively against the greenback.

Policymakers agreed to create a joint bank supervision scheme, to be established by the end of the year. Once that is operational, the EFSF/ESM bailout funds will be given authority to recapitalize banks directly without funneling funds through the governments of member states (which otherwise increases sovereign debt levels).

Finally, the terms of Spain’s bank rescue will be amended such that the EFSF/ESM funds will not gain seniority status. This would have given them priority to get paid out ahead of the country’s other creditors in the event of default and restructuring (which would discourage private buying of Spanish bonds, driving borrowing costs higher).

Looking ahead, S&P 500 stock index futures are pointing firmly higher, suggesting the risk-on mood is likely to carry forward and continue to keep haven currencies under pressure against their major counterparts. All eyes remain on Brussels as the second day of the summit gets underway, with the focus now likely to shift toward measures aimed at boosting regional economic growth.

As we discussed previously, agreement on this front is likely to prove easier, particularly as the latest batch of economic data shows slumping growth in the periphery is making its way to the Eurozone core (namely, Germany and France). The recession in the currency bloc and its consequences for other economies is the most significant headwind facing global performance this year. Consequently, a convincing set of pro-growth measuresthat helps soften the downturn ought to prove further supportive for sentiment.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Building Permits (MoM) (JAN)

-7.1

3.0%

-7.6% (R+)

23:01

GBP

GfK Consumer Confidence Survey (MAY)

-29

-29

-29

23:15

JPY

Markit/JMMA Manufacturing PMI (JUN)

49.9

-

50.7

23:30

JPY

Jobless Rate (MAY)

4.4%

4.5%

4.6%

23:30

JPY

Job-To-Applicant Ratio (MAY)

0.81%

0.8

0.79

23:30

JPY

Household Spending (YoY) (MAY)

4.0%

2.5%

2.6%

23:30

JPY

National CPI (YoY) (MAY)

0.2%

0.2%

0.4%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (MAY)

-0.1%

0.0%

0.2%

23:30

JPY

National CPI Ex Food, Energy (YoY) (MAY)

-0.6%

-0.6%

-0.3%

23:50

JPY

Industrial Production (YoY) (MAY P)

6.2%

6.7%

12.9%

23:50

JPY

Industrial Production (MoM) (MAY P)

-3.1%

-2.8%

-0.2%

23:50

JPY

Loans & Discounts Corp (YoY) (MAY)

-0.53%

-

-0.64%

1:30

CNY

Industrial Profits YTD (YoY) (MAY)

-2.4%

-

-1.6%

1:30

AUD

Private Sector Credit (MoM) (MAY)

0.5%

0.4%

0.4%

1:30

AUD

Private Sector Credit (YoY) (MAY)

4.0%

3.9%

3.8%

1:35

CNY

MNI Business Condition Survey (JUN)

53.21

51.92

54.40

3:00

NZD

Money Supply M3 (YoY) (MAY)

6.3%

-

5.5%

4:00

JPY

Vehicle Production (YoY) (MAY)

59.5%

-

173.8%

5:00

JPY

Construction Orders (YoY) (MAY)

-0.9%

-

16.2%

5:00

JPY

Annualized Housing Starts (MAY)

0.903M

0.881M

0.896M

5:00

JPY

Housing Starts (YoY) (MAY)

9.3%

6.6%

10.3%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

5:30

EUR

French Gross Domestic Product (QoQ) (1Q F)

0.0% (A)

0.0%

Low

5:30

EUR

French Gross Domestic Product (YoY) (1Q F)

0.3% (A)

0.3%

Low

6:00

EUR

German Retail Sales (YoY) (MAY)

-1.1% (A)

-4.3%

Low

6:00

EUR

German Retail Sales (MoM) (MAY)

-0.3% (A)

-0.2%

Low

6:45

EUR

French Consumer Spending (YoY) (MAY)

0.6% (A)

0.4%

Low

6:45

EUR

French Consumer Spending (MoM) (MAY)

0.4% (A)

0.7%

Low

6:45

EUR

French Producer Prices (MoM) (MAY)

-1.0% (A)

0.0%

Low

6:45

EUR

French Producer Prices (YoY) (MAY)

2.2% (A)

2.7%

Low

7:00

CHF

KOF Swiss Leading Indicator (JUN)

1.16 (A)

0.80

Medium

8:00

EUR

Euro-Zone M3 s.a. (3M) (MAY)

2.8% (A)

2.7%

Medium

8:00

EUR

Euro-Zone M3 s.a. (YoY) (MAY)

2.9% (A)

2.5%

Medium

8:30

GBP

Index of Services (3M/3M) (APR)

-0.2%

0.1%

Low

8:30

GBP

Index of Services (MoM) (APR)

0.0%

0.5%

Low

9:00

EUR

Euro-Zone CPI Estimate (YoY) (JUN)

2.4%

2.4%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2392

1.2692

GBPUSD

1.5461

1.5682

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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