Shares rallied and the dollar fell as the Federal Reserve announced last night that it was maintaining its ultra easy policy stance. The USD sank to a three year low against a basket of currencies, with the euro (after reaching 17-month highs of $1.4881) looking to a break of $1.50, as Fed Chairman Ben Bernanke said the central bank had no timetable to hike rates. A funding currency of choice, further dollar weakness is anticipated as the Fed also said that it will end its bond buying programme in June as planned. The dollar did, however, manage to hold up against the yen following yesterday’s announcement by S&P that it had lowered its outlook on Japan’s sovereign debt. The Bank of Japan is also expected to keep monetary policy very loose for the foreseeable future as it looks to support the economy following the recent earthquake.

The first post-meeting press conference from the FOMC can be judged a success from the perspective that it did little to detract from the main message from the statement. The latter re-iterated that rates were likely to be kept low “for an extended period”, whilst the language on quantitative easing suggested that the current program will be completed by June with no plans for more at this stage. As a result, the softer dollar tone that was in evidence after the statement continued through the press conference and during the Asia session. It was also notable that the Fed was a little more cautious on the recovery than before, noting the “moderate pace” of the recovery, rather than acknowledging the “firmer footing” to growth, as was the case after the previous meeting. The dollar is likely to remain in the spotlight today, with the first estimate of US Q1 GDP due for release later. A slowing in the annualised growth rate to 2.0% (from 3.1%) is anticipated.

Sterling rose broadly yesterday, seeing gains versus the dollar and euro following the release of the first estimate of UK Q1 GDP, which showed that the economy grew by 0.5%. Although this was in line with expectations, there had been talk in the marketplace yesterday morning that the number could be weaker than that. Thus, sterling saw something of a relief rally. While holding onto gains versus the USD overnight and indeed rallying further, sterling has since fallen back versus the euro though it remains off recent lows. Data released overnight showed that UK consumer confidence fell to a 2-year low in April, with sentiment undermined by the March budget. There are no UK data of note today, leaving sterling vulnerable to moves in the euro and dollar.

Regards,

Tom Trevorrow
Account Manager
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