Dollar rally on Fed's optimistic tone

Good Morning,

- Dollar rally on Fed's optimistic tone… The dollar hovered near a three-week peak of 109.15 yen, while the euro fell to a three-week trough of $1.2586.

- In a statement on Wednesday after a two-day meeting, the Fed ended its quantitative easing programme of bond purchases. At its peak, the programme pumped $85 billion a month into the financial system.

- Federal Reserve officials dismissed recent turmoil in global financial markets, and focused instead on “solid” employment gains that will keep them on a path toward an interest-rate increase next year. A majority of U.S. policy makers at their meeting yesterday also set aside concerns, both among their own members and in financial markets, about too-low inflation, voting to proceed with plans to end their third round of asset purchases.

- The Fed did retain its basic guidance that overnight borrowing costs would remain near zero for a "considerable time". But it dropped the characterization of the U.S. labour market slack as "significant" in a show of confidence in the economy's prospects, the part markets perceived as containing a slightly hawkish turn.

- U.S. Treasury yields surged, with the benchmark 10-year Treasury note yield spiking to a three-week high of 2.362 percent as markets pulled forward expectations of when the Fed would raise interest rates.

- Greenspan: The Federal Reserve won’t be able to exit from its accommodative monetary policy without some turmoil in financial markets, former U.S. central bank chairman Alan Greenspan said Wednesday.

- Noumra on EUR/USD: The signal: Pretty hawkish, and pointing to US monetary policy normalization being on track. "First, QE ended. Second, there were no explicit comments on weak foreign growth, a strong dollar, or tension in financial markets. Third, the Fed toned down its language on labor market slack, now saying it is ‘gradually diminishing’. Fourth, it took out the sentence saying that ‘a highly accommodative stance of monetary policy remains appropriate’," Nomura clarifies. The strategy: Looking to sell EUR/USD but reluctant to call for a significant and broad-based repeat USD gains. "Earlier this week, we added fresh EURUSD downside (1 by 1.5 put spread 1.26/1.2375). We missed the opportunity to sell EURUSD spot right ahead of FOMC around 1.2750. But, if anything, the signal from the Fed makes us more inclined to try to get such additional EURUSD downside on board in the coming day," Nomura advises.

- The Bank of Spain expects the Spanish economy to have expanded 0.5% quarter-on-quarter in the third quarter of 2014 after 0.6% growth in the second quarter, the central bank said in its quarterly report on the Spanish economy. The bank also expects gross domestic product (GDP) growth to come in at 1.6% year-on-year in the said period. Such a result would be much better than many of Spain's peers in the euro zone and evidence the country has firmly set its foot on the path to recovery.

- The Reserve Bank of New Zealand has held the Official Cash Rate at 3.5% as expected and repeated its expectation of an unspecified "period of assessment" before it makes "further policy adjustment." But the central bank did shift its language slightly about future rate hikes, dropping a comment used on September 11 about "some further policy tightening" being necessary to keep inflation near its 2% target.

- Brazil surprised late on Wednesday by hiking interest rates in a bold move that signals President Dilma Rousseff could make market-friendly policy changes after her narrow re-election victory on Sunday.

- Watch today: German jobless, EU economic sentiment, US GDP.

Have a nice Day !