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The Euro Plunges in Asia

Posted by Joseph Trevisani on Nov 4, 2013 11:28:00 AM

The euro's initial Asian range of 1.3484 to 1.3502 took the Friday New York close at 1.3486 as the base, counting on mediocre U.S. data (manufacturing ISM and vehicle sales) to keep the Fed in the quantitative easing column well into the New Year.  There was no negative news from the EMU over the weekend.  Thursday’s ECB policy meeting will probably not produce a rate cut but the odds for further easing have certainly increased.

The united currency encountered a sharp sell-off mid-way in the Tokyo session attributed to remarks from Dallas Fed President Richard Fisher speaking in Sydney, Australia.

The euro dropped from 1.3494 to 1.3442  in just 14 minutes following his comments criticizing the U.S. Federal government.

“I am not a proponent of increasing government spending without restraint.” “We have a government that hasn’t been able to agree on a budget in five years; that has historically, under both Republican and Democrat presidents and Congresses, spent money and committed itself to fund long-term programs without devising revenue streams to cover current costs or fund future liabilities.”  “The inability of our government to get its act together has countered the pro-cyclical role of the Federal Reserve,” he said

In response to an audience question whether he could see the bond purchase program known as quantitative easing increased rather curtailed he said he personally could not see the Fed balance sheet expanded further. 

“I think at the earliest possible moment we need to focus on transitioning back to having an interest-rate driven monetary policy,” he said. “I can envisage us holding the base rate low for a very long time until we see acceleration in the economy and especially in our case given our mandate on employment, as long as inflation stays in its current range, at less than 2 percent.”

Mr. Fisher has long been critical of the Fed’s current quantitative easing policy of holding market interest rates low as a spur to economic growth and job creation.

The currency quickly rebounded after its plummet bolstered byEMU manufacturing PMI at 51.3 in October, as expected, but the fourth month in a row of growth following 23 straight months of contraction.

By the London open the euro was back to 1.3480 and continued to rise from there, opening in New York at 8:00 am at 1.3511.

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