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USD Jumps against ZAR, PLN, & HUF Post FOMC Meeting

USD Jumps against ZAR, PLN, & HUF Post FOMC Meeting

2014-10-31 20:18:00
Kara Dailey,
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USD Jumps against ZAR, PLN, & HUF Post FOMC Meeting

Talking Points:

  • FOMC press release contains more hawkish rhetoric
  • Outlook on labor market substantially improved
  • EM currencies face pressure as bullish engulfing pattern singles continuation of strong up-trend

The statement from Wednesday’s FOMC meeting was riddled with more hawkish rhetoric, indicating an increasingly optimistic outlook on the US economy. With risks to economic activity balanced and substantial improvements observed in the labor market, the Federal Reserve confirmed October’s conclusion of their asset purchase program while simultaneously reiterating the need to maintain interest rates between 0- ¼ percent for a considerable amount of time. The change in policy is likely to renew confidence in the US dollar while concurrently placing pressure on the emerging market currencies.

In review of economic activity, the FOMC noted the following improvements and obstacles:

Improved Economic Activity

Obstacles Hindering Activity

Consistent Job Gains (+248,000)

Inflation Still Running Below Targeted 2.0%

Lower Unemployment (5.9%)

Underutilization of Labor Present but Diminishing

Moderately Rising Household Spending (+0.3%)

Housing Recovery Remains Slow

With Fiscal Policy no longer cited as a drag on economic growth and risks to the labor market balanced out, bond yields rose slightly allowing the dollar to maintain its upward momentum.

Conversely, in emerging markets a tightening of monetary policy in the US is likely to slow capital inflows and in some cases even create a reversal. While adjustments moving forward may be more gradual the initial announcement on October 29th resulted in a jump in the dollar’s value against the rand, forint, and zloty. The currency pairs exhibited a bullish engulfing pattern on the 29th, indicating a strong continuation of the up-trend.

Daily Charts for: USD/HUF, USD/PLN, & USD/ZAR

dailyfx daily USD ZAR HUF and PLN charts.

Charts Created Using MarketScope2.0

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