Forex Investment and Currency Trading

This afternoon all eyes will be on the FOMC’s next interest rate decision at 2:15PM. The big speculation over the last few days has been if the Fed is going to announce the purchase of Treasury securities. However, some think that’s unlikely to be the case, since most FOMC members have
clearly back-pedalled away from that option over the last few weeks. The general consensus (aside seems to be that the Fed would like to wait and see how the TALF (which is getting up and running this week) works out before reconsidering purchasing Treasurys. Here’s a sample of some recent comments (not all are direct quotes):

• New York Fed President Dudley (6 March): At this point in time the Fed has judged buying long-term Treasuries is not the most efficient means of easing financial market conditions.
• Boston Fed President Rosengren (27February): The Fed’s large-scale purchases of mortgage-backed and agency securities have helped conventional mortgage rates fall to between 5 percent and 5.25 percent recently from around 6 percent when the program was announced. The Fed could potentially expand that program to help further lower the market rates on home
  financing.
• Chairman Bernanke (24 February): The Fed is keeping the option open to buy Treasurys if [our emphasis] that’s the best way to improve credit markets. The goal is the boost private credit market conditions, not impact the cost of government finance.
• Chicago Fed President Evans (18 February): The Fed is still mulling purchases of longer-term Treasurys. I want to see the impact of the TALF expansion before thinking more about long-term Treasury buying.
• St. Louis Fed President Bullard (17 February): The Federal Reserve’s buying of longer-dated Treasury bonds is still on the table, but it could be helpful to monitor the impact of other programs through spring.

This does not sound like a Fed that is ready to rush into purchasing Treasurys. It sounds like a Fed that is clearly in wait and see mode.

In today’s FOMC statement we wouldn’t be surprised to see a reference to expanding the balance sheet, or even an announcement that it is expanding its MBS/agency security purchase programs. But we would be surprised to see an about-face from the Fed on the topic of Treasurys. After the January meeting when the Fed held back on announcing any kind of plan to purchase Treasurys (though still kept the door open, as market expects it to do again today), the USD saw an immediate broad-based rally, so it’s likely that we’ll see a similar reaction this afternoon.