The Fed has come out and said they are considering tapering their asset purchases in the US. This is a HUGE positive for the market in general as the Fed’s tapering is designed to help the economy rather than the currency market.
It has been a tough few weeks for the Forex Market, after a number of factors have helped to sink the market. The relevant factors for the past month have been the Fed’s comments concerning tapering, which has led to a number of complaints from traders, as they have been unable to sell off their wares, as traders were concerned that the Fed would delay its tapering program. Unfortunately for traders, the Fed has kept its word.
- Euro and pound remain strong despite change in tone
- Unemployment claims in the US are down
- Wall Street prepares for another negative opening
The euro market continued to rise despite indications that the US Federal Reserve is preparing to adjust its policy and reduce bond purchases if the economy continues to grow as strongly as it has recently. This initially strengthened the US dollar, but positive employment figures and other factors led to a recovery. Wall Street also looks set to open lower for the fourth consecutive day.
Positive domestic factors help the euro and the pound
Given the content of the latest Fed meeting minutes and reports that a rate cut could be in the offing following a strong increase in economic activity, the currency market reacted well. Normally this would make currency traders jump on the US dollar, but they haven’t moved. This is evidenced by the fact that the US dollar index is approaching a 2021 low of about 89 points. The main reasons for this were positive domestic developments for both the euro and sterling. The former has certainly benefited from the acceleration of the vaccination campaign and the economic recovery. This also applies to the UK and sterling, which has long been at the forefront of renewing and easing social constraints.
Unemployment rates continue to decline
Another factor that forex traders saw as contributing to the dollar’s decline were the weekly unemployment figures. The data released today is expected to show a further decline, which is in line with the last few weeks where this indicator has shown a steady, if insignificant, decline. Analysts expect 452,000 new jobless claims to be filed this week for the week ending the 15th. Can be published. ECB President Christine Lagarde’s speech today will also highlight the improvement in COVID and the progress of the economic recovery. Operators, both in Europe and the US, will be listening intently as the EU considers changing its economic policy and taking a less dovish stance. The move comes amid concerns that the Fed may have to deviate from its current course.
Markets point to a negative opening
Meanwhile, on Wall Street, the major indices are pointing to another negative opening. Futures for the Dow Jones were trading more than 150 points below their previous closing price during a volatile weekend. The technology sector in particular continues to struggle as market participants seek direction on economic policy and as persistent inflation fears weigh on high-growth companies. The NASDAQ will also open in the red, after it managed to dodge heavy selling pressure early yesterday and recovered from session lows, losing 1.7% to end the day unchanged.