FOMC Minutes Reveal Cautious Optimism

Last updated 9/2/2009 2:20 PM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

Cautious optimism is almost an overused term these days but there is no better way to describe the minutes from the most recent FOMC meeting. If you recall, last month the central bank decided to end their asset purchase program in October, one month later than initially projected. They wanted to slow their purchases to help promote a smooth transition in the market. The minutes reveled that Fed officials have grown optimistic enough to even consider cutting their purchases of mortgage backed securities and agencies. The only reason why they did not make changes to the program was because it was not due to expire until the end of next year and they could wait. 

As for the economy, the Fed sees signs of stabilization. Housing activity and motor vehicle sales are improving while overall consumer spending is leveling out. The recovery is expected to gain momentum in 2010 but consumer demand will still be constrained by reduced household wealth. Although the Fed is more confident that the recovery is underway, the strength of the recovery is still uncertain. Even within the central bank, there is a disagreement about the pace of the upturn because of tight credit and the risk of adverse shocks. 

For the foreign exchange market, the Fed minutes failed to help . Although we are seeing a modest recovery in currency pairs such as the EUR/USD and GBP/USD, the greenback is still holding onto most of its recent gains.  USD/JPY on the other hand continued despite on speculation that Dainippon Sumitomo Pharma Co plans to buy Sepracor Inc for 250 billion yen or ($2.7 billion).

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.