No change at the Fed

The biggest story on Wednesday was also the dullest one. In Washington, the Federal Open Market Committee “decided to keep the target range for the federal funds rate at 0 to 1/4 percent” and said it would remain there until the return of full employment and a 2% inflation rate.

Any diehards still hoping for hints of higher rates or a wind-down of quantitative easing will have noted that the pace of the economic recovery “has moderated in recent months”. They will also have been unable to miss the comment by Chairman Jay Powell that it is too early to talk about tapering.

The US dollar had a good day, leading the major currency pack by an average of 0.8% and adding two thirds of a cent against third-placed sterling. That success had nothing to do with the Fed though, or with the smaller-than-expected 0.2% increase in US durable goods orders. It came from a risk-off mood among investors, driven partly by a growing realisation that vaccinations today do not inevitably lead to economic normality tomorrow.

Knot sending the euro lower

Klaas Knot, the De Nederlandsche Bank President and ex-officio member of the European Central Bank Governing Council, featured in a TV interview yesterday. In it, he indicated that the ECB is not oblivious to the euro’s 10% rise against the US dollar over the last year.

Mr Knot said the value of the euro is “something we of course monitor very, very carefully” and is “one of the factors we take into account” in setting monetary policy. He also indicated the possibility of even deeper rate cuts, saying; “We’ve explored the effective lower bound, but we haven’t found it yet.”

Whilst Mr Knot is only one of 25 members of the Governing Council, and the Netherlands is a life member of the Northern European group of monetary hawks, investors hoisted in the message. The euro lost ground, giving up three fifths of a US cent to share third place with the pound.

GDP x5

The ecostat agenda for the coming two days includes nothing at all from the United Kingdom. The most important statistics, if only by convention, are the fourth quarter gross domestic product estimates for the United States and Germany.

First out this morning was New Zealand’s balance of trade. It booked a $17 million surplus in December. Japan followed up with retail trade, which fell 0.8% in the same month. Norwegian retail sales were even less buoyant, falling by a monthly 5.7%. This morning the European Commission publishes its measures of consumer and business confidence. After lunch, together with GDP, the US data cover jobless claims, new home sales and the trade deficit.

Japanese unemployment and industrial production begin the day on Friday, followed by Australian private sector credit. The European numbers relate to French, German and Spanish GDP, Spanish retail sales and inflation, as well as German and Norwegian unemployment. The North American data include US personal income and spending, Canadian GDP for November and the Michigan index of US consumer sentiment.