FOMC dollar strength on status quo decision

London (Oct 31)  The FOMC yesterday surprised nobody by holding off on any change to its asset purchase programme, continuing to buy up USD45bn Treasuries and USD40bn mortgage-backed securities each month, awaiting “more evidence” before considering any tapering.

References to the recent softening of data were couched in Fedspeak, with acknowledgement that the housing sector has “slowed somewhat” and economic expansion being at a “moderate pace.”

Any tapering may have been held back by the government shutdown, but now that government agencies are back to work, the data they are publishing lacks any positive news or signs of momentum in the US economy. The ADP report suggested a stumbling labour market, and consumer confidence figures have shown a slump in Main Street optimism. The November payroll numbers may be supported by a post-shutdown rebound, but it would take a very robust print to give the Fed the signs of a substantial improvement in the labour market it is looking for.

In the Asian session, Japan PMI manufacturing rose from 52.5 to 54.2 in October, growing at the fastest pace in three years. However the Nikkei fell from highs, falling 1.2 percent on disappointing results.

Eurozone inflation numbers due today is expected to be up, thanks to the Italian VAT hike, in spite of lower energy bills and low wage inflation.

Today's initial jobless claims for the week ending 26 October will give further insight into the strength of the US labour market, however the numbers continue to be distorted by computer upgrades and the backlog caused by the government shutdown.