Yesterday’s FOMC meeting focused great attention as for summer meeting. FOMC decreased its purchase programs by $10 bn but there were slight changes in language. The description of macroeconomic indicators was better than anticipated but the part about labor market seemed more dovish. FOMC pointed out to significant slack in labor force.
Bank of America says that optimistic tone of statement was neutralized by dovish message regarding labor market. Such dovish surprise had only little impact on Dollar which stayed bullish for the rest of the day thanks to positive 2Q GDP data earlier.
BofA anticipates further USD strength in 2H as a result of accelerating growth that will support Dollar. However, further improvement in employment and wages readings might be required given Fed’s stance and reliance on data.
Some commentators points, that despite clear improvement in economy and labor market, Fed stays dovish because of hardly understandable reasons. This way, markets may stop listening to Fed’s whining and focus on improvement in upcoming data.
Nomura thinks, that USD will accelerate in 2H arguing that some FOMC members sound more hawkish than Janet Yellen in her latest comments. Moreover, Plosser dissented from yesterday’s somehow dovish statement. Nomura also says, that we are very close to end of assets purchase program and FOMC will be obliged to present new forward guidance, which won’t be easy task. Analysts believe, that QE ending may give Dollar a boost while increasing volatility over domestic assets.
