USD/JPY flat as Fed suggests tapering likely to continue

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Investing.com - The dollar rose against the yen on Wednesday after the Federal Reserve suggested in the minutes of its January policy meeting that it will continue dismantling stimulus programs that soften the greenback to kick-start recovery.

Asset purchases aim to bolster the economy by suppressing long-term interest rates, a strategy that sends investors to stocks to spur investing and hiring, thus weakening the dollar as a side effect.

The Fed added it may no longer consider a 6.5% unemployment rate as a threshold for rate hikes, which offset the greenback's gains.

In U.S. trading, USD/JPY was down 0.03% and trading at 102.33, up from a session low of 101.85 and off a high of 102.47.

The pair was expected to test support at 101.39, Monday's low, and resistance at 102.75, Tuesday's high.

At its Jan. 28-29 policy meeting, the Fed voted to trim its monthly asset purchasing program to $65 billion from $75 billion and stressed benchmark interest rates will stay at 0.00-0.25% until the unemployment rates approaches 6.5% or even dips below that mark, depending on the health of the economy in the context of price stability.

The minutes released on Wednesday, however, revealed that monetary authorities debated ditching language suggesting rates may rise if the unemployment rate falls past 6.5%, a policy tool known as forward guidance.

"Participants agreed that, with the unemployment rate approaching 6-1/2 percent, it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed," the minutes reported.

The unemployment rate currently stands at 6.6% though many still remain out of the labor force due to fruitless job searches, which artificially lowers the percentage headline unemployment rate.

Those out of work but not actively seek jobs are not counted as part of the labor force.

Elsewhere, Fed officials were willing to overlook January's soft jobs report and other economic indicators taking into account a string of powerful winter storms may have disrupted commerce.

While some hawkish member felt the time to hike interest rates will come soon, consensus pointed to keeping rates on hold while dismantling monthly bond purchases, which gave the greenback some support.

"All members agreed that the cumulative improvement in labor market conditions and the likelihood of continuing improvement indicated that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting," the minutes read.

"Members again judged that, if the economy continued to develop as anticipated, further reductions would be undertaken in measured steps."

Elsewhere on Wednesday, the Commerce Department reported that U.S. housing starts fell 16% in January to 880,000 units, outpacing expectations for a 5.7% drop, though a series of winter storms may have weakened the indicator and not a downtick in demand.

The number of building permits issued last month declined by 5.4% to a seasonally adjusted 937,000 units, outpacing expectations for a 1.8% decline.

A separate report revealed that the U.S. producer price index rose 0.2% last month, beating forecasts for a 0.1% gain, while core producer prices were also up 0.2%.

The yen, meanwhile, was up against the euro and down against the pound, with EUR/JPY down 0.15% at 140.63, and GBP/JPY trading up 0.07% at 170.89.

On Thursday, the U.S. is to release the weekly report on initial jobless claims and data on consumer price inflation.

The U.S. is also to release data on manufacturing activity in the Philadelphia region.

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This article appears in: Investing , Forex and Currencies

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