Fed announced that the economy is "leveling out" It also stated that it will reduce the pace of the Treasury purchase plan started in March and end it at the end of October. The other news from the Fed is that it will continue to keep rates steady for an "extended period" They are not going to take on the issue of raising rates in the near-term even if the economy is showing some signs of improvement.
This news was equity positive, but the impact on the dollar is a little less clear. The end of the Treasury buying program reduces the worst fears concerning quantitative easing and monetizing debt, but the deficit problem is still looming over the market. A portfolio balance model for exchange rates suggest that the continued deficits will be dollar negative unless there is a corresponding gain in the growth. The potential for stronger relative growth versus some of the other advanced economies will place a flow on how low the dollar can go. We do not fall into the dollar rally camp, but also believe that it may be early to see a steep decline in the dollar. Expect range-bound behavior until we start to get Fall numbers.
This news was equity positive, but the impact on the dollar is a little less clear. The end of the Treasury buying program reduces the worst fears concerning quantitative easing and monetizing debt, but the deficit problem is still looming over the market. A portfolio balance model for exchange rates suggest that the continued deficits will be dollar negative unless there is a corresponding gain in the growth. The potential for stronger relative growth versus some of the other advanced economies will place a flow on how low the dollar can go. We do not fall into the dollar rally camp, but also believe that it may be early to see a steep decline in the dollar. Expect range-bound behavior until we start to get Fall numbers.
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