There was little in the way of significant economic data on Wednesday until the opening of the US session. Rumors surfaced during the day that the ECB was considering moving into negative interest rates, but these stories were denied by the bank. The euro declined and remains in the red this morning at 1.3419. The euro tumbled yesterday after a report said the ECB was considering cutting its deposit rate, one of its two key interest rates, to below zero. An ECB spokesperson declined to comment on the report. Traders spent Wednesday eagerly waiting for the release of the FOMC minutes. US retail sales for the month of October rose more than expected. Consumer prices were relatively flat for the month, a sign that inflation remains tame but there was no market reaction.
FOMC voting members expected that the economic data will show ongoing improvement in the labor market and “thus warrant trimming the pace of purchases in coming months,” according to the record of the Federal Open Market Committee’s Oct. 29-30 gathering. Stocks pared gains earlier as Fed Bank of St. Louis President James Bullard said a reduction in bond buying is “on the table” for the next policy meeting in December.
As of yesterday, four of five investors expected the Fed to delay a decision to begin reducing its bond buying until March 2014 or later, with just 5 percent looking for a move next month, according to the latest Bloomberg Global Poll. Only one in 20 said the central bank will begin to reduce its purchases at its Dec. 17-18 meeting, according to the poll yesterday of investors. The US dollar climbed to trade at 81.21 this morning adding 13 points. Markets have made sharp moves in recent months as investors try to determine when the Fed will pare its bond-buying program. But some investors said Wednesday that perceived changes in the timing of the Fed’s withdrawal from bond buying, known as “tapering,” hasn’t changed their outlook. The Australian dollar has fallen more than half a US cent after the minutes of the Federal Reserve’s October policy meeting showed that it could reduce its economic stimulus program in the coming months. The AUD declined to trade at 0.9300 along with its neighbor the kiwi falling to 0.8250 after the release of lackluster Chinese HSBC PMI data this morning. HSBC’s China flash purchasing manager’s index (PMI) for November fell to 50.4 from a seven-month high of 50.9 in October, sparking doubts about the sustainability of the mainland’s economic recovery.
The Japanese yen is holding close to the 100 price level as the Bank of Japan announced that it would continue its current policies after its two day meeting concluded earlier this morning. “Japan’s economy has been recovering moderately,” the bank said in a statement. “The year-on-year rate of increase in the CPI (consumer price index) is likely to rise gradually.” Reversing years of falling prices is a key goal of the BoJ’s easing plan, with the bank aiming for 2.0 percent inflation in two years. Analysts, however, have been increasingly skeptical of that ambitious timeline. The bank has been ratcheting up its economic growth outlook, with its most recent forecast predicting an average 2.7 percent expansion in the year to next March, with inflation at 0.7 percent.