The US Federal Reserve pulled off a difficult balancing act last night, sounding both more upbeat on the economy, but also keeping open the option of further easing measures and maintaining the commitment to keep rates low until the end of 2014. The expectation of growth was altered from "modest" to "moderate", a seemingly small adjustment but a sign of the Fed's cautious optimism that the recent run of good data is more than likely to be sustained. It also noted the easing of strains in financial markets, whilst acknowledging the "notable" decline in the unemployment rate which remains "elevated" in its view. The interesting thing is that, even with reduced chances of further QE, markets are increasingly shifting their focus onto economy, so Asian stock were able to follow through on the strong gains seen yesterday in European and US markets. But FX remains more circumspect. It's interesting to note the declining correlation between AUD/JPY and stocks, from 0.90 to just above 0.70 now (rolling 3mth vs. S&P500). It's a sign that FX is disconnecting from the wider risk-on/risk-off ebb and flow in other markets.
Also in today's Daily Forex Brief:
- China further eases lending standards
- Yen weakness not down to BoJ
- Green shoots in the UK