Yesterday’s FOMC meeting saw the Fed move the dollar weaker as it stated that it would maintain its loose monetary policy stance of “exceptionally low levels” for federal funds at current levels until at least mid-2013 as it believes that economic conditions warrant it as employment remains high, and inflation seems to be manageable. This moves away from the normal tone of an “extended period” that has been used over the last few years

The other major move was the admission that they would look to employ further policy tools as appropriate. While some analysts were looking for the Fed to announce another round of QE effective immediately this was a clear sign that a further round of quantitative easing looms as a possibility. The Fed were vague with what instrument they would employ exactly and when this would actually occur  and our view remains that the Fed will likely look to keep something in reserve rather than fire off another round of QE now. A lesson from the last round of easing was that simply threatening to use more accommodative policy was just as effective as actually implementing it.

US treasury yields once again tumbled as a result of not only the announcement but of strong demand for their safety and once again gold pushed to new record highs. In unison with the bearish outlook from the Fed, the USD suffered immediately after the decision

Spanish and Italian bond yields continued to fall as the ECB engaged further in purchasing  their sovereign bonds, causing the euro to push the pound and dollar around in late trading. Uncertainty within the US and euro zone also saw safe haven buying of CHF accelerating further yesterday, pushing the Swiss currency to record highs against the USD and euro, against the latter it remains within striking distance of parity. While the SNB has thrown the kitchen sink at the Swiss strength with a combination of intervention, loose monetary policy (0% interest rates) and plenty of talk for the moment the market is firmly winning

Growth is becoming a major concern globally so today’s Quarterly inflation report which not only focuses on inflation forecasts by growth forecast remains dually important. It looks likely that the committee will downgrade growth prospects yet again as disappointing figures from the UK have persisted. Growth is obviously important factor in getting the UK heading back in the right direction as the weaker growth remains, the more ambitious the fiscal austerity measures undertaken recently will become to achieve. We expect worse than expected forecast and for the pound to underperform as a result

Latest exchange rates at time of writing