It was a busy day for the US yesterday as the Federal Reserve was forced to cut its forecast for economic growth in 2012 from 2.9% to 2.4% and predicted a central unemployment rate of up to 8.2%, up from the previous forecast of 8%, made on 25th April. It also kept the benchmark interest rates unchanged at 0.25% but the real news was that the Federal Reserve expanded a program that extends the average duration of its Treasury holdings but stopped short of rolling out a direct bond buyback program to spur economic recovery.
Operation Twist which is the $400 billion program that shuffles its Treasury holdings by swapping short-term bonds for long-term ones is to be expanded by another $267 billion. This involves the Federal Reserve buying bonds that have between six and 30 years left on them and selling equal amount of bonds with less than three years left. The expansion announced by Federal Reserve Chairman Ben Bernanke was not as aggressive as the markets had expected with market expectations of the Fed resorting to a more aggressive stimulus tool known as quantitative easing. This is where the Fed intervenes and buys Treasury’s and other assets directly from banks, boosting the economy and encouraging the jobs market. The rising unemployment is proving to be a major concern for the US having added only 69,000 jobs for May, the lowest number since May of last year.
The less than drastic measures saw a rise in the USD against most major currencies and mixed stocks in Asian trading. Australia’s S&P/ASX200 was down 0.65%, Hong Kong’s Hang Seng Index was down 0.50%, whilst Japan’s Nikkei 225 Index increased by 0.76%. The US Dollar Index which measures the USD against a basket of 6 weighted currencies was up 0.21%, valued at $81.78
Today should provide plenty of opportunities for the binary trader with plenty of important data being released in the US and Europe. Preliminary data on manufacturing and service-sector output is released in the Eurozone this morning, whilst Germany and France will release individual reports and President Mario Draghi is due to speak. Later in the U.S. weekly initial jobless claims will be published followed by preliminary data on manufacturing activity and an industry report on existing home sales.
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