The Dollar resumed the hair of the beast on the forex thanks to the announcements of the FOMC. The governors have unanimously decided to begin the reduction of their balance sheet than 4500 billion dollars.
But note that the Fed is not sure how it will reduce its balance sheet from October. The Fed stopped QE3 in October 2014 but in order to maintain the balance sheet at 4500 Mds, the central bank of US has reinvested the funds received when the debt reached maturity. She has decided to slow down reinvestment. Or does it stop completely ? The two options are on the table.
In all cases, the rates at 2 years in US is the highest since December 2008… The probability of a rate hike in December is now more than 60%, given that the trajectory of the FED funds compiled from the expectations of each governor has not budged compared to the month of June (for 2017 and 2018).
The rate on 10-year goes from 2.24 % to 2.285 %. Gold drops below $ 1,300 and the S&P 500 is not at the feast as it moves back under 2500 points. And yes, everyone knows that if the scholarships are mounted blindly since the financial crisis, it is because the QE in the repetition have allowed the multinationals to borrow for three times nothing and then buy back their shares. The party is over… but fear not, central banks will re-probably walk the plank to ticket if the stock market falls too heavily… Janet Yellen has been very clear this evening by stating that the evolution of prices on the markets influence certainly the monetary policy. Difficult to be more clear.
Markets does not appease most illusions and understand that the time of the normalization of monetary rang. But given the size of the debt, we expect that the rate will not be slow to dropping again. It is mathematical. The stock of debt being what it is, an increase in borrowing rates will make the rolling of the debt too painful to be here 3 to 6 years…
But in the short term, the market will go in the ranks and finally getting the Dollar. Indeed, the strong drop in the greenback is quite surprising in the light of al divergence in monetary quite blatantly with the ECB, which is likely to add a layer of QE in October.
About the press conference of Janet Yellen, we should note that the president on the hot seat reserves the right to change the trajectory of its monetary policy if inflation remains too low for too long. In short, the FED stands ready to force-feed of new banks in the event of a new low economic. «We are ready to stabilize again our balance sheet if the economic outlook deteriorates.» said Janet Yellen. This means that the reinvestment will resume if the stock exchanges are threatening to collapse. What would be normal in view of the valuations of companies often delusional…
The Dollar remains up.
- Graph EUR/USD H4