Dollar gains, Treasuries decline as the Fed Minutes damp Easing

by Darcie | Tuesday, Apr 3, 2012 | 440 views

The Dollar rose to a two week high against the Euro after the Federal Reserve’s employment report came out and its decision to cut hold off the monetary stimulus was backed by the improvement in the employment data. The stocks crashed while the dollar and Treasury yields gained significantly. The day finally closed at dollar gaining 0.3 % against the euro at $1.3194 per euro . Earlier in the day it rose to a two week high at $1.3233 per euro , a rise of nearly 0.7 % percent. The DXY , used as a scale to measure the U.S currency against its six major trading partners , gained the biggest intraday since March 9 at 0.9% . The dollar denominated securities became more lucrative , as the dollar rallied against the yen during the day after the Federal Reserve said that there will not be any more quantitative easing or additional stimulus for asset purchases unless the economy loses momentum or there is a price rise less than 2% implying that there would be decreased liquidity for buying high-yield assets. This comes as a contrast to its earlier statement in Januray where it said that the current scenario warranted additional steps “before long” . Those that have been expecting pricing in of additional QE are definitely disappointed as the markets are pricing them out as a corrective check.

The employment data , which shows that the jobs  increased by more than 200,000 for the fourth consecutive month . The unemployment rate and the jobless insurance both have significantly declined in the past few months. The Central bank is also likely to hold the interest rates at zero , as the economy might not grow at the current pace and if we are to continuously bring the unemployment rate down.

According to the Atlanta fed President Dennis Lockhart , given the present positivity there is no need for more accommodation and only drastic circumstances could force him to go for another round of large –scale bond purchases and the Fed will respond to the movement of the economy , affirming that another round of quantitative easing is not completely off the table . The downside risks still sustain but in the light of current trends there is no need for continuing the stimulus .

Yields on 30 year bond and  10-year Treasury notes rose 12 basis points 3.44%   and  11 basis points to 2.3 percent respectively. A QE was being expected by the investors , but given the 200,000 payrolls for four months in a row , there was no way the Fed was going to do a QE sighting a slower pace in the momentum of the economy.

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