FOMC Holds Monetary Policy Unchanged, Osborne Cuts Growth, Yen Weakens on Kuroda - 21.3.2013

The US dollar index remains in 83.06/82.47 sideways zone after the FED announced that keeps monetary policy unchanged with federal funds rate between 0 to 0.25% range and continuing purchasing financial assets amounting of $85B per month. In addition the Committee will hold record low rates as long as unemployment rate remains above 6.5% and inflation is projected for the following 2 years to be no more than 2.5%. In Federal Reserve’s March projections the unemployment rate is projected to fall below 6.5% in 2015 and inflation will remain around target at 2%. Therefore the most of the members of the Committee project that in 2015 would be the time of increase in Federal Funds rate as is indicated in the chart below, the same like in December projections. The USDJPY is increasing after Kuroda’s appointment in the BOJ governorship, rising to upside barrier 96.12, just below the more than 3 ½ high at 96.68. At the same time, NIKKEI 225 returned to new highs advancing by 1.34% today on higher than expected Chinese HSBC Manufacturing PMI that increase risk appetite, despite that the Japanese Trade Balance was widened to ¥-1.09T . The GBPUSD touched the top of 1.5175/1.5028 sideways zone after the BOE minutes while later on George Osborne announced the budget downgrading growth and indicating 5 years of austerity measures. He projected that deficit will fall to 7.4% of GDP in 2013 and in 6.8% in 2014, weighing on sterling that retreated from top at 1.5175. Cyprus is negotiating a new plan to bail out banks and the government with the EURUSD steady between 1.2991/1.2932 range. However the currency pair dropped below 1.2932 as of writing as there are reports the emergency liquidity to Cyprus will be cut as well as due to lower than expected PMIs for France and Germany.