By: Hillel Fuld
The uncertainty over the future federal reserve decision that many are speculating will lead to further quantitative easing as a result of a slowing economy, has led to a serious USD rebound.
Fed Speculations
The market experts are split down the middle about the Fed’s expected decision on Tuesday although everyone agrees that the announcement will be of a cautious nature.
"I have a feeling that the market has got carried away with the idea of the Fed easing. It seems as if most traders are expecting the Fed to say it will reinvest maturing bonds at least," said a trader at a Japanese bank.
A poll among money managers conducted by Ried Thunberg/ICAP discovered that 52 percent thought the Fed would take a passive stance on policy change, while 48 percent believed they would at least hint at new steps.
Some of the speculations are that these steps could include anything from a commitment to consider more quantitative easing; to actually reinvesting money from maturing debt into Treasuries or MBS; to cutting interest paid on excess reserves; to buying financial assets outright. The options are many,
"If the Fed does take action today and U.S. interest rates fall, that is likely to lead to dollar-selling," said Hiroshi Maeba, manager of forex at Nomura Securities.
The crucial policy announcement from the Fed is expected around 1815 GMT.
Given the unclear nature of the upcoming announcement, speculators chose to trim their short U.S. dollar positions, pulling the euro back to $1.3186 down 0.25 percent from $1.3225 in New York and a three-month peak of $1.3334 on Friday.
Its decline mounted after stop-loss orders hit at $1.32.
The pullback came despite upbeat EUR zone data, with investor morale surging and German exports up significantly.
German exports have benefited greatly from resilient demand in Asia, which should be echoed by July trade data from China on Tuesday. China's exports are seen up 35.5 percent on the year, with imports rising 30 percent. ECONCN.
JPY is Different
The JPY was the exception to the USD’s broad rebound on Tuesday, edging up slightly, due to repatriation by Japanese investors due to the redemption of U.S. bonds.