In its rate policy statement yesterday the FOMC added the comment that ‘In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective’. It is hard to blame the Fed for choosing to direct market attention to its earlier success of declining inflation through June of last year. But lack of progress is one thing, implying only that forward progress has stopped. Inflation has not simply stopped its descent but appears to have reversed course if the recent string of economic data releases can be taken at face value. If anything, the universal sentiment of the U.S. consumer is that prices for goods and services has continued to rise, and that the Fed’s methods used to assess inflation trends are outdated.
The FOMC’s dovish tone precipitated a dollar selloff leading to a 0.44% decline in the U.S. Dollar Index yesterday. The dollar has regained its footing today in an even mix of gains and losses vs. the G10.
The Bank of Japan intervened yesterday, entering the market and selling an estimated $23 billion to buy JPY. This was the second intervention this week and curious timing given heightened volatility around the FOMC rate announcement. USD/JPY traded to a low of 153.16 but was back to 155.50 within an hour.
U.S. Treasury yields are little changed today and have fully reversed yesterday’s drop. The 10-year yield is at 4.644%, near the middle of its most recent two-week range.
Gold is -1.30% today and on the verge of a fresh 1-month low near $2,281.47oz.
