Fed remains committed to lower rate for a "considerable time"

Thursday, September 18, 2014

The US Fed remained committed to lower rates as details of the statement after this month’s FOMC meeting showed policymakers were expecting rates to remain low for a “considerable time”.  Despite the continued ambiguity regarding an eventual rate rise after tapering comes to an end in October Fed policymakers offered some further insight into the pace of increases, expecting a faster pace throughout 2015 and 2016. Concerns regarding unemployment were cited as a significant factor in leaving rates unchanged for the near term leading many market participants to believe Yellen is ensuring the economy has ample support, against the building pressure for a change in guidance. Forecasts were revised upwards with the FOMC now expecting a target rate of 1.25% to 1.5% at the end of 2015 from a previous expectation of 1% to 1.25%.

10 year US treasury yields rose to their highest levels in 2 and a half months ending just below 2.62% yesterday while five year treasury yields rallied to a 12-month high towards 1.83% as the yield curve flattened. The dollar index rallied to the highest levels since July last year as the Fed moved forward with its tapering of monetary stimulus. Intraday gains saw levels reach as high as 84.782 before paring back to a close just below 84.350 where DXY has consolidated in recent sessions. Activity against a basket of major currencies has seen the index open around yesterday’s highs before pulling back slightly towards 84.575 as sterling weakness ahead of the Scottish vote today offers further support to the dollar.

Chinese new home prices fell further in August as tighter credit conditions put a dampener on demand. According to NBS data, prices for new residential apartments decreased in 68 out of the 70 surveyed major cities, extending the rout which has seen prices drop in the majority of cities covered since May. Home sales have slipped 11% year-to-date as banks tightened lending requirements in an effort to curb defaults and with Beijing expected to inject 500bn yuan to the five biggest Chinese banks, market participants hope the increase in credit coupled with cooling measures the government have put in place will stabilise the property market. 

10 year US yields rally above 2.6%

USGG10YR Index US Generic Govt 2014 09 18 07 30 53

DXY rallies to 14-month high

DXY Curncy DOLLAR INDEX SPOT 2014 09 18 08 01 25

Events for today

0230

CN

Aug

Property Prices

0930

UK

Aug

Retail Sales

1330

US

Aug

Housing starts

1330

US

w/e

Jobless Claims

1500

US

Sep

Philly Fed

1530

US

w/e

EIA Nat Gas

Topics: US Fed, DXY, Treasuries
More from: Kash Kamal