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USDJPY Slips After Fed August Beige Book Shows Economy Grew "Gradually"

USDJPY Slips After Fed August Beige Book Shows Economy Grew "Gradually"

Tzu-Wen Chen, Technical Strategist

THE TAKEAWAY: [Fed’s Beige Book released] > [Overall economic activity in July and early August continued to expand “gradually”; Retail sales increased and housing market improved, while manufacturing softened] > [USDJPY slips]

The Federal Reserve released the latest edition of its Beige Book report today. According to the report, overall economic activity in July and early August continued to expand “gradually”, with six of the twelve Fed districts citing expansion at a “modest pace”. The Beige Book report, which is usually released two weeks before the Federal Open Market Committee (FOMC) meets to set monetary policy, offers anecdotal evidence that helps policy makers assess the condition of the economy and actions going forward.

Overall, the Fed’s twelve regional banks indicated that retail activity, including auto sales, had increased since the last report, while the real estate markets were “generally said to be improving”. Also on the upside, bankers in six districts reported rising loan demand, with credit conditions improving amid lower credit spreads and increased competition among lending institutions.

On the other hand, many districts reported some softening in the manufacturing sector, as weakness in overseas economies continues to dampen demand. Employment conditions were holding steady or “growing slightly” in most districts with upward wage pressure reported to be “very contained” across the board. On the price front, most districts reported that overall prices for finished goods were relatively stable despite “somewhat increased input prices”.

The latest Beige Book report follows the release of the Fed’s August monetary policy meeting minutes last week. The minutes revealed that many of the FOMC members saw additional quantitative easing as a means to bolstering U.S. recovery and favoring further easing soon if sustained growth of the U.S. economy doesn’t pick up.

The Beige Book also comes ahead of this Friday’s much-anticipated Jackson Hole Economic Policy Symposium. Global markets will be keeping a close watch on Fed Chairman Ben Bernanke’s speech at the annual symposium for further hints on the Fed’s stance on monetary policy.

USDJPY 1-minute Chart: August 29, 2012

Chart created using Market Scope – Prepared by Tzu-Wen Chen

The U.S. dollar strengthened against the Japanese yen in the minutes leading up to the release of the Beige Book report, as investors speculated that the report would indicate stronger data that would dampen support for further easing by the Fed. Despite a slight pullback after the Beige Book was released, the greenback held onto most of its pre-data gains against the yen. At the time this report was written, the USDJPY pair was trading at 78.72 yen.

--- Written by Tzu-Wen Chen, DailyFX Research

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