Comments from Eric Rosengren, president of the Federal Reserve Bank of Boston, that the central bank should exit from its bond buying program "only very gradually" helped put a floor under the euro which had been undermined by stronger U.S. economic growth predictions from several leading banks.
The euro had recovered to 1.3640 in the early afternoon in New York after reaching 1.3597 in mid-morning.
Market expectation is now that the Fed will continue to reduce its bond purchases by $10 billion at each of the next seven FOMC meetings, ending them entirely by December.
Speaking in Hartford Connecticut, Mr. Rosengren said “This recovery has already been too slow, and we do not want premature tightening of monetary policy to delay the return to more normal economic conditions.” “A very gradual normalization is very appropriate given that the unemployment rate remains unusually high and the inflation rate remains unusually low.”
Mr. Rosengren was the only dissenter at the December 18th FOMC meeting when the Fed reduced its $85 billion a month in securities purchases by $10 billion. He will not have a vote on policy decisions this year.
Mr. Rosengren characterized the taper as conditional saying the Fed may slow or reverse its reduction if the job market worsens "substantially" or if higher bond yields damage economic growth. The bank could speed up its taper if GDP or inflation rise "very rapidly".
In speaking to reporters Mr. Rosengren said he does not foresee a large jump in 10-year government bond yields due to the Fed policy change.
The yield on the generic 10-year bond is down two basis points today to 2.94 percent having touched 3.05 percent last Thursday and closing at 2.99 percent on Friday.
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FED: Rosengren is speaking to reporters, says he does not see a big jump in 10y
yld due to taper. More on MNI Main wire.