Market Review - 19/06/2013 22:01GMT

Dollar rallies broadly on FOMC statement and Bernanke's tapering comments

The greenback rose strongly against other currencies on Wednesday as the Federal Open Market Committee said the downside risk of the U.S. economy and labour market. Dollar was also supported as Federal Reserve Chairman Bernanke said at the press conference the central bank is likely to reduce the bond purchase this year if economic forecast comes in as expected

Although the greenback rose initially to 95.66 in Australian morning, cross buying of yen versus euro pressured the pair to 94.83 in European morning before trading sideways. Later, price rallied above Tuesday's top at 95.77 in U.S. afternoon after FOMC said the downside risk of the economy and the labor market have diminished, the pair eventually climbed to session high of 97.03 as Federal Reserve Chairman Bernanke said the central bank is likely to reduce the bond purchase this year if economic forecast comes in as expected.

FOMC statement said 'Fed repeats will buy longer-term treasury securities at pace of $45 billion a month, agency MBS at 40 billion a month; downside risks to outlook for economy and labor market have diminished since the fall; vote in favor policy was 10-2; labor market conditions have shown further improvement in recent months, but jobless rate remains elevated; inflation has been running below target, partly reflecting transitory influences; long-term inflation expectations stable.'

Fed's Bernanke said in his press conference 'have been reviewing exit principles in recent meetings; strong majority now expects Fed will not sell MBS during process of normalizing policy; decline in jobless rate to 6.5% will not automatically lead to rate increase; increase in target for Fed funds rate, when they begin, likely to be gradual; committee expects considerable period of time between end of asset purchases and interest rate hikes; if economic forecast comes in as expected, committee sees likely reduction in pace of purchases this year; if economic forecast correct, asset purchases will end by the middle of next year; unemployment rate would likely be in vicinity of 7% when asset buys come to an end.'

The single currency traded narrowly above Australian low at 1.3385 in Asian and European sessions. Later, despite euro's brief rise to 1.3417 in U.S. afternoon, the pair tumbled below Tuesday's low at 1.3326 due to FOMC statement and the comments from Fed's Bernanke. Price eventually hit session low of 1.3262 before stabilising.

The British pound went through a roller-coaster session on Wednesday. Despite cable's initial fall to 1.5618 in Asian morning, price rose to 1.5670 in European morning due to cross buying of sterling versus euro before falling to 1.5603 after the release of the Bank of England MPC minutes. Later, although the steep fall in eur/gbp pushed the pound above 1.5670 to 1.5678 in New York morning, dollar's broad-based strength pressured cable below Tuesday's low at 1.5565 to a low at 1.5450 in U.S. afternoon before stabilising.

BOE minutes stated that 'voted 6-3 to keep QE total at 375 billion sterling in June; King, Fisher, Miles voted for 400 billion sterling; MPC voted 9 - 0 keep interest rates at 0.5%; U.K. economic developments in past month generally positive, in line with may inflation report; still likely CPI will temporarily hit 3% in summer, remain close to that level during autumn; rise in global bond yield in past month showed market sensitivity to monetary policy expectations; for some MPC members, this was evidence that further QE would be effective if needed.'

In other news, IMF said 'Spain has made progress on reforms and economic imbalances are correcting rapid but outlook remains tough; Spain's nominal deficit targets should be flexible in the event growth falls short of expectations; sees advantages to post-bailout credit backstop for Ireland; Ireland's policy programme sound, prospects for 2013 bailout exit "reasonably strong".' German Finance Ministry spokesman said 'cannot see at first sight why Cyprus aid programme should be changed; Cyprus programme should be implemented without further delay.'

Data to be released on Thursday :

New Zealand GDP, Japan leading indicator, China HSBC flash manufacturing PMI, Swiss rate decision, trade balance, German PPI, manufacturing PMI, service PMI, Italy industrial orders, current account, U.K. retail sales, CBI industrial trend, EU manufacturing PMI, service PMI, consumer confidence, U.S. PMI, jobless claim, existing home sales, leading indicator, Philadelphia Fed Survey.