Archived IMT (2009.08.12)

THE MOST IMPORTANT PART OF THE FOMC statement was the assertion that it will gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

The US dollar is already stabilizing from its intraday retreat after the FOMC revealed its plans for a slower pace of treasury purchases by delaying the conclusion of its purchases in October from the originally planned September. As we mentioned throughout the week, the stabilizing dollar will gain a fresh boost from the combination of prolonged retreat in commodities and equities (equities will ignore the Feds discreet upgrade of the economic conditions and instead grow more nervousness over the slower injection of liquidity into the system).

As was seen in previous payrolls reports, the case of positive dollar response is expected to be followed by a gradual retreat in equities. And only once equities display a more significant case of risk aversion will the JPY join the dollar in extending gains vs EUR, GBP, CAD, CHF, AUD and NZD.

With the Fed planning to slow its asset purchase program and the Bank of England expanding its own purchases, this will leave STERLING EXPOSED TO DEEPER LOSSES as the BoE remains the most generous provider of QE.