Consolidation Continues, No Reaction to Economic Data.

Forex markets continue to consolidate in tight range today as investors are staying cautious ahead of FOMC announcement.

 

The focus would remain on discussion about the tapering of QE measures. Besides the meeting statement, the Fed would also release new economic and policy projections while Chairman Bernanke would hold a press conference.

 

As Chairman Ben Bernanke testified before the Congress' Joint Economic Committee in May, he signalled that the central bank 'could take a step down in the next two meetings' if economic data warrants.

 

His comments resulted in turbulent market reaction although later watered down by other policymakers.

 

Dollar was pressured with the dollar index back below 81, comparing to May's high of 84.50.

 

However, we'd emphasize again that there is no clear sign of reversal in equities, nor in treasury yields.

 

Bond guru Bill Gross anticipates the Fed would end QE later this year. His forecast was not driven by expectation of sustainable recovery in the US economy but the Treasury will lack bonds to issue due to lower than expected deficits.

 

Meanwhile, Gross appears less optimistic on the effectiveness of QE measures in stimulating the economy.

 

He stated that "central banks seem to believe that higher and higher asset prices produced necessarily by more and more QE check writing will inevitably stimulate real economic growth via the spillover wealth effect into consumption and real investment''...