Patience is out the window

Last week the US Federal Reserve removed the word "patience" from their statement with regards to interest rate hikes in the future indicating that they may raise rates sooner than expected. However, they also leave in caveat to further evaluate the economic conditions that let that guide their policy "Even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

Since the announcement the US dollar has lost 2-3% against many of the major currencies contrary the fact the interest rates may rise. What does this mean? Has the market lost faith in the FED guiding policy to an improved economy? One interesting thing to consider is that 90% of the economists surveyed by Bloomberg assumed that the FED would remove "patience" from their policy. So, even though the consensus anticipated the change, the currency market still had some of the most volatility since the "fat finger" flash crash in 2010. Furthermore, much of the fundamental economic data out of the United States is more promising that many of the major currencies that it lost ground to.

 

 

 

EUR/USD finally had some relief from the free fall of the last few months and hit a high of over 1.10 while settling back to 1.0650 before the week ended. The Yen dropped to a three week low at 119.80 while the USD/CHF fell almost 3% (0.9750). That said, the CHF has been so strong as of late, luxury Swiss watch marker Tag Heuer had to drop or freeze prices in many markets to help consumers endure the relative weakness of their currencies.