US Dollar Strengthens: Possibility of Tapering in December Remains

FOMC Holds Steady

On Wednesday, the US Dollar reversed its direction and strengthened against other major currencies, continuing with its recovery from a near nine-month low touched last week, after the Federal Reserve decided to maintain the pace of its massive stimulus program at $85 billion-a-month. The decision was widely in line with market expectations that the US central bank will delay tapering – reducing the pace of its massive bond-buying stimulus program, due to a recent slew of economic data, that had fallen short of market expectations, and due to a partial government shutdown, debt-ceiling debate and disappointing September jobs report.

In its statement, the central bank repeated its optimistic view that the economy was improving at a moderate pace. The Fed noted that the recovery in the housing sector had slowed somewhat in recent months and fiscal policy is restraining economic growth. Hence, the central bank decided to await for more evidence of sustained economic recovery before adjusting the pace of its purchases. Moreover, taking into consideration that the US government facing another round of budget debates early in 2014, markets expectations support status quo to Fed’s stimulus program through early 2014.

US Economic Data Releases

Meanwhile, a couple of economic indicators that included sluggish October ADP National Employment Report, providing estimated change in the number of employed people in the private-sector, and the US consumer price index, that has been subdued throughout this year and remained well below the central bank’s 2% target, justified continuation of the Fed’s accommodative policy.

Earlier on Wednesday, payrolls processing firm ADP reported that private-sector employers added 130,000 jobs in October, the fewest jobs in six months. Private-sector jobs gain in October was lower than expectations of 151,000 jobs and also less than the revised 145,000 jobs created in the month of September. September’s job gain was revised down from an originally estimated increase of 166,000 to 145,000. ADP report is viewed as a guidance to the US Labor Department’s month jobs report (Non-Farm Payrolls). The October employment report is scheduled for release next week.

Separately, the US Labor Department reported September inflation figures on Wednesday. US headline inflation, measured by Consumer Price Index (CPI), increased 0.2% in September on a seasonally adjusted basis. Meanwhile, the core CPI, which excludes volatile food and energy, registered a smaller rise of 0.1% in September. Economists had predicted a 0.2% increase in both CPI and in core CPI.

More US economic data is scheduled for release on Thursday. The Labor Department is scheduled to release the weekly jobless claims. Initial jobless claims for the week ended Oct. 26 are anticipated to fall to 341,000 from previous week’s 350,000. Also, watch-out for Chicago PMI data, which is projected to fall from September’s reading of 55.7 to 55.1 in October.

• Although, there were no indications of the Fed tapering to begin in December; However, considering that the central bank remained firm over deciding on the eventual tapering at every meeting, possibility to slow the pace of its bond-buying program in December hasn’t been ruled out.
• This turned out to move in favor of and pointed to scope for further gains for the US Dollar.

However, disappointing October employment report, scheduled for release next Friday, would confirm that the US Fed is not moving to scale back its stimulus measures before 2014, encouraging investors to move away from the US Dollar and buy riskier assets.

Original Article: Admiral Markets and hyper link Admiral Markets with http://www.admiralmarkets.com/