It is widely expected that the Fed may decide to start cutting its stimulus program this week’s meeting. Many economists believe that a string of upbeat economic data and easing fiscal restraints could prompt top Fed officials to moderate the pace of asset purchases soon. On the economic front, U.S. industrial production jumped 1.1 percent in November after a modest 0.1-percent increase in October, marking the biggest gain in a year, said the Fed in a report released on Monday.
Meanwhile, manufacturing conditions in December were flat for New York manufacturers, according to a survey released on Monday by the Federal Reserve Bank of New York. The survey showed manufacturing activity in the region rose 3.19 points to 0.98 in December from a negative reading in November. Moreover, U.S. nonfarm business sector labor productivity increased at a 3.0-percent annual rate during the third quarter, said the Labor Department.
“A series of positive economic releases from the US has once again re-ignited anticipation for an early taper to take place,” he said. The Fed’s key policymakers are to meet for two days from Tuesday to weigh whether growth is strong enough to merit cutting back its $85bil-a-month, bond-buying scheme. The so-called tapering would likely boost the greenback, making dollar-priced oil more expensive for countries using other currencies, dampening demand. The US dollar is down this morning at 80.20 giving up 4 points. There have been no clear moves by the greenback over the past week first falling to trade in the 79 level and then recovering to the mid 80 price remaining well below its expected trading range.
The euro on the other hand rebounded after better than expected manufacturing numbers in Germany and the overall eurozone helped push the euro to trade at 1.3769 adding 7 points this morning. The euro may see support in data today forecast to show German investor confidence rose to the highest level in more than four years. The ZEW Center for European Economic Research in Mannheim will probably say its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 55 in December from 54.6 the previous month, according to the Bloomberg survey median. If confirmed, that would be the strongest reading since October 2009.
Across the Pacific investors seem comforted by the BoJ’s massive monthly purchases, bond-market investors have been more or less ignoring the signals of higher inflation in the pipeline — which would normally be reflected in higher yields. Stock-market investors, on the other hand, have been following the opposite line, building into their valuations and projections of equity-price performance the expectation that Japan will indeed soon be posting 2% inflation. TheJapanese yen is trading at 103 which new estimates that it could fall to the 110 level in the spring when the BoJ is expected to add more stimulus to offset the sales tax hike. Renewed signs of the BoJ’s undaunted pro-easing boas have emerged at the same time as indications that the Ministry of Finance and the BoJ are following an overt interest-rate policy through the asset-purchase program.
RBA minutes released this morning weighed on the Aussie which is trading well below the 90 price range after RBA Governor Steven’s mentioned intervention as a tool last week and said that the currency was overpriced in the current market.