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Dollar Lifted on FOMC, Fiscal Hope; What to Watch for BoE and Pound

Dollar Lifted on FOMC, Fiscal Hope; What to Watch for BoE and Pound

2013-10-10 10:30:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- Day ten of the US government shutdown and long-term solutions appear distant; short-term deal (approximately six-weeks) is said to be in the works.

- US debt limit hit on October 17 (7 days).

- Bank of England Rate Decision will be a non-event but for the fact it would suggest building faith in the UK economy.

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INTRADAY PERFORMANCE UPDATE: 09:45 GMT

MAJORS

AUD

CAD

CHF

EUR

GBP

JPY

NZD

(vs USD)

-0.13%

-0.01%

-0.03%

+0.04%

-0.09%

-0.50%

-0.60%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.14% (+0.57%prior 5-days)

ASIA/EUROPE FOREX NEWS WRAP

The US Dollar is limping higher on Thursday; building on yesterday’s modest gains but the world’s reserve currency now has accumulated over half a percent in gains the past five trading days, a sign that investors are feeling less uncertain over US fiscal and monetary issues.

Sure enough, relief on both of these fronts appeared late-Wednesday: the September FOMC Minutes suggested that a QE3 taper is still on track for 2013, even as evidence builds for an October hold then a modest December taper; and political reports coming from inside the belt suggest that Democratic and Republican leaders are working on a short-term debt limit extension and resolution to reopen the government in the interim, thereby ending the government shutdown and pushing back the threat of default.

As this political drama unfolds, it’s clear investors overall are biased bullish than bearish; selling has been shallow and met with instantaneous buying – a clear sign that investors are more worried about missing the next leg up than being caught in the break down. If CDS markets and short-term US Treasury yields are correct, however, an acceptable, long-term resolution remains distant at best.

Away from the US Dollar, the British Pound is the most interesting currency to watch this morning as the Bank of England meets for its monthly policy meeting. Many market observers have chalked this up to being a non-event. I agree to a certain extent; there won’t be a change in the asset purchase target at £375B, and the main interest rate will remain on hold at 0.50%, as it has since March 2009.

Recently higher interest rates and a strong British Pound might have been a concern, but both have eased from multi-month and multi-year highs over the past several weeks amid steadying data. Absent a policy statement – which is a possibility if Governor Carney wants to make it a quarterly tradition, having last released one three months ago in July – the continued policy stance of the BoE to withhold additional stimulus mind as well be a vote of confidence in the UK economy. Accordingly, continued inaction by the BoE could initially provoke a bullish bias for the GBPUSD. Join me at 06:45 EDT/10:45 GMT in DailyFX Plus to discuss trade setups for the Bank of England Rate Decision.

GBPUSD 1-hour Chart: October3 to 10, 2013 Intraday

Dollar_Lifted_on_FOMC_Fiscal_Hope_What_to_Watch_for_BoE_and_Pound_body_Picture_1.png, Dollar Lifted on FOMC, Fiscal Hope; What to Watch for BoE and Pound

Taking a look at European credit, mixed yields across the continent are offering little guidance to the Euro.The Italian 2-year note yield has decreased to 1.648% (-2.4-bps) while the Spanish 2-year note yield has increased to 1.400% (+0.1-bps). Similarly, the Italian 10-year note yield has decreased to 4.332% (-4.0-bps) while the Spanish 10-year note yield has decreased to 4.308% (-1.9-bps); lower yields imply higher prices.

Read more: Demand for Safety Falls as Yellen Nomination Overshadows Budget Impasse

ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION

Dollar_Lifted_on_FOMC_Fiscal_Hope_What_to_Watch_for_BoE_and_Pound_body_x0000_i1028.png, Dollar Lifted on FOMC, Fiscal Hope; What to Watch for BoE and Pound

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators. Want the forecasts to appear right on your charts? Download the DailyFX News App.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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