Capital Markets Overview

The US dollar continues to trade heavily in the aftermath of the FOMC statement that underscored the Federal Reserve’s readiness to move. Although activity has been choppy the direction is clear. The euro joined the other major currencies by moving above its 200-day moving average yesterday. Follow through buying today has lifted the euro through its August highs. Even the yen, where intervention fears had kept the buying in check has strengthen and is at its best levels against the dollar since the actual intervention took place (~JPY84.50).

The price action indicates this is a dollar move not a yen move (as the yen is softer on most crosses), and with Japanese markets closed tomorrow, another bout of unilateral intervention looks unlikely, giving yen buyers a bit of encouragement today. Most of the emerging market currencies are participating in the move against the dollar as well, though market talk suggests a couple central banks in Asia may have tried to slow their currencies appreciation.

Equity markets, perhaps following the Us lead, are mixed. The prospect of lower interest rates may be favorable, but the risk of deflation less so (for earnings).

The Fed statement has sparked a large global debt market rally. Interest rate differentials are dollar negative.