The currency trade on Wednesday passed under the sign of the Federal Reserve. As expected, the central bank left the interest rates unchanged at their current level of 1.25%. The big news, however, was related to the Fed’s balance of almost 4.5 trillion dollar. During a press conference, Fed chief Janet Yellen announced that the central bank would begin the program to normalize the balance sheet in October.
The program will begin with the release of $10 billion a month. Every three months their volume will be increased by 10 billion, reaching 50 billion a month in October 2018. The aim is for the bank to release itself from the bonds it bought during the unprecedented program of quantitative easing. The purchase of debt securities after the outbreak of the financial crisis in 2008 was one of the main tools used by the Federal Reserve to stabilize the financial markets.
Yellen also said the possibility of a third rising interest rate in December is still on the table. 11 of the FOMC members are of the opinion that interest rates will be raised once more by the end of the year. In June, only seven of the members of the Monetary Policy Committee predicted that interest would be raised in December. As a result, federal funds futures are now estimated at a 73% probability of raising the key interest rate, compared with 52% before the meeting of central bankers.
The dollar appreciated against the major currencies supported by the signals coming from the Federal Reserve. Green money rose to 1.1890 against the euro. The USD/JPY pair climbed to a 2-month high, reaching 112.51. The dollar index, measuring the change of the US currency against the basket of six major currencies, rose by 0.65% to 92.22 points. This is the strongest daily performance for the index since August 4, when it rose to levels of 92.42.
The New Zealand dollar rose 0.6 percent, ending trade at about 0.7360. The New Zealand currency climbed to a six-week high after one of the latest polls showed that the New Zealand National Party led Labor before the parliamentary elections to be held over the weekend.