No Concrete Steps From the Fed

The US dollar rallied after the Fed held off on any new action while acknowledging the slowdown in the US economy. The dollar gained roughly a half-cent against other currencies in the aftermath of the decision; cable was the laggard after the weak UK manufacturing PMI. The highlights in Asia are comments from the BOJs Morimoto and Australian retail sales.

The FOMC mildly downgraded its economic forecasts cryptically altered its forward guidance, suggesting that it is closer to action but not as close as the market was anticipating. Most marketwatchers expected the Fed to prolong its extended period pledge to mid-2015 from late-2014 but there was no change to the guidance.

Instead, the Fed said it will closely monitor incoming information and will provide accommodation as needed. That is a slight departure from the prior statement that said the FOMC is prepared to take further action as appropriate. In no way does it guarantee a new round of QE3 at the next meeting in September.

Instead, the Fed will continue to watch economic data and developments in Europe. On Wednesday, signals were mixed. ADP employment was at +163K in July, beating the +120K consensus. The ISM manufacturing index remained in contractionary territory for the second month at 49.8 compared to 50.2 exp.

The highlights of the Asia-Pacific session come at 0130 GMT. Thats when BOJ board member Morimoto delivers a speech and Australian June retail sales are released. Morimoto may hint at more easing after the IMF today urged Japan to do more to fight deflation. Australian sales are expected up 0.7% in June and up 0.9% in Q2 after inflation.

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-AB