The US Fed’s latest policy decision and ECB’s bond purchasing program

Commenting on the US Fed’s latest policy decision, Toby Sturgeon, Global Head of Fiduciary Investment Services at ZEDRA, said: “Federal Reserve Chair Jerome Powell retained a dovish stance during the central bank’s latest policy decision. He reiterated that they would be carefully looking ahead to ensure there was tangible evidence the U.S. economy has fully recovered. Policymakers don’t anticipate an increase in interest rates at least until 2023. The S&P 500 rose to a record high and yields on US Treasuries fell from session highs on the news as they upgraded the outlook for the U.S. economy to a 6.5% annual rate. Yields had been steadily rising in recent weeks due to the recovery and the likelihood for higher inflation.”

Commenting on the US Fed’s latest policy decision, Olivier Konzeoue, FX Sales Trader at Saxo Markets, said: “A cautious Fed decided to keep rates near zero and to maintain the pace of its monthly assets purchase at $120Bn but upgraded its economic outlook resulting in a change in the dot plot with seven out of 18 fed officials seeing a rate hike in 2023. The FOMC highlighted a rapid but uneven economic recovery, whilst the Fed core inflation forecasts reveal a drop in 2022 which could be attributed to the potential permanent destruction of jobs caused by a large amount of companies forced to adapt and increase productivity to survive the pandemic.

 “The Fed therefore deems it important to maintain accommodative financial conditions and is happy to see inflation run hot for some time in order to return to full employment by 2023. A sigh of relief for US Equities instantly paring some of their earlier losses with S&P trading flat and Nasdaq back to -0.3% from -1.5% on the day whilst Dow jumped 150 points. USD retreated across the board with US short end rates lower and US 10y Yields at 1.63% from 1.66%, EUR led the charge back up to 1.1974 whilst AUD is back to flirting with 0.78 and cable back to 1.3950 area.”

Commenting on the ECB’s bond purchasing program, Rupert Thompson, Chief Investment Officer at Kingswood, said: “The European Central Bank plans to step up the pace of its bond purchases over coming months in an attempt to prevent a tightening of financing conditions on the back of the recent rise in government bond yields. The move didn’t require the ECB expanding the size of its €1.85trn quantitative easing program as this runs until next March and already gives it scope to purchase another €1trn of bonds. The action occurs against the backdrop of the disappointingly slow vaccine roll-out, which is delaying the economic recovery in the Eurozone, and also the fiscal stimulus in the region being considerably smaller than that now underway in the US.”