By: DailyForex.com
The one thing markets detest more than anything else is uncertainty. Concerns that the US Federal Reserve may end their $85 billion per month asset purchasing scheme had triggered falls in global stock markets, reversing the recent Bullish trend, and sent the US Dollar to a low against the Yen not seen since early April. The Dollar has fallen from a mid-May high of 102 Yen to the Dollar to a low of 94 or so.
The Federal Reserve was attempting to improve liquidity in the economy and ensure the supply of mortgage funding through its asset purchase scheme, but it has always been clear that this would have to end at some stage. The Fed has eased uncertainty by revealing that it intends to cut-back on the programme towards the end of this year and will withdraw it completely by the middle of next year. However, the decision is linked to the prevailing economic condition as Mr Bernanke explained at the end of a two-day Federal Reserve monetary policy meeting: “we have no deterministic or fixed plan”.
The same meeting left interest rates unchanged at between 0 to 0.25%. The policy is likely to remain in force for quite some time as 14 of the 19 board members think there should be no increase until 2015 with one member suggesting that interest rates should be untouched until 2016. The Federal Reserve is unlikely to increase rates until US unemployment falls below its target value of 6.5% of the workforce. Currently, US unemployment stands at 7.6%. It is anticipated that it will decline to between 7.2 and 7.3% by the end of 2013 and fall to 5.8 to 6.2% by 2015. The Federal Reserve stressed that unemployment below 6.5% would not trigger a rate increase, but it represented a threshold above which rates would be maintained at their current levels.