Week in FX Americas – The Big Boys Are Back next Week: FOMC

Nothing is changing the investors view – next week’s FOMC meeting is likely to maintain the policy status quo. Many expect Helicopter Ben and his cohorts to reaffirm both elements of their current accommodation efforts, with forward guidance and the QE program unlikely to be changed.

Agreed, there has been some notable developments affecting the US economic outlook since January’s meeting, like this week’s unemployment claims and perhaps last week’s potential game changer, the NFP headline print. However, despite leading the G4 major economic pack, there remains a strain between these fundamental improvements and global lingering uncertainties that could create some problems. In reality, one employment benchmark does not make a job improvement trend consistent just yet. The fear of any imminent economic hindrances will have policy makers supporting financial conditions for a tad while longer.

The US 10-year yield rally is helping to support the “mighty’ buck, proving somewhat that the dollar is being brought largely on expectations of an end to QE. The EUR and Sterling’s late week ending surge has managed to whip some of the weak short dollar positions back-into-line. Mid-week’s US 10-year issue saw +47% of the +$21b auction being awarded to indirect bidders, a proxy for overseas interest. This is the highest foreign interest in over two-years. The reason why? Interest rates, 10′s trading through +2% improves foreign demand. This higher yield seems to be the markets psychological risk/reward threshold and a supporter for the “mighty dollar.”

• US Consumer Sentiment Drops due to Lawmakers Lack of Consensus on Budget
• US Industrial Production Rises 0.7 percent in February
• Former Fed Chief Greenspan Sees no Irrational Exuberance
• Treasury Sec Jack Lew “Not Worried” about Stock Bubble
• US Current Account Deficit Narrows in Fourth Quarter
• Obama Seeking Tax Middle Ground with Republicans
• US Inventories Rise 1 percent in January
• US Retail Rises in February despite higher Taxes
• 1st Casualty of “Currency Wars” – US Automakers
• Americans Spending Less Despite Stocks Optimism
• U.S. Labor Market Improves with Job Openings Increase
• Blackstone Group is Betting Heavily on US Residential Real Estate

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