Market fears are creeping insidiously out of the wood work as fractious central bankers try to explain where their colleagues are going wrong and as bank economists rein in their growth forecasts. The morning seems completely void of any kind of silver lining with each and every one of investors’ earlier fears sitting rather unappetizingly on the plate in front of them. The dollar is up while stocks are substantially lower. Commodity prices are slumping and rising bonds are creating record lows for yields. It’s an ugly site that remains and one where few can agree on how to pretty it up. There are plenty of headlines covering Fed-dissenter Charles Plosser in Thursday’s media. He sums up more than just the problems facing the Fed: “What we did isn’t going to work,” he said. “Our problems are not problems easily addressed by monetary policy,” he said, adding that the Fed is “risking its credibility because it’s doing things that don’t work.”
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U.S. Dollar – Charles Plosser was one of three voters at the FOMC who recently dissented with colleagues as the thrust of its policy statement was changed from ‘extended period’ language to define March 2013 as a minimum for virtually zero interest rates. Along with Richard Fisher, the pair on Wednesday spoke out about giving the appearance that the central bank was trying to protect stock market investors by changing the wording in the statement directly after the stock market crashed. The crash was caused by an S&P ratings downgrade for the U.S. Mr. Plosser is actually relatively bullish about the economy and in part argues against further stimulus because he predicts the economy will grow between 3-3.5% in 2012. In all likelihood he is probably well off-track and his recent take is being interpreted as bearish on a day when Morgan Stanley cut its global growth forecast mainly on account of poor and slow policy responses to the debt-crisis in the Eurozone. The weaker growth profile on the continent also inspired a growth downgrade for China, which was reinforced by the same from Deutsche Bank. The dollar was already higher on safe haven grounds ahead of a stronger-than-hoped for consumer price report earlier, but continued to march forward after initial claims data also missed its marker. New unemployment claims rose to 409,000 while those made in the previous week were revised higher to 399,000 offering little solace to econ-bulls hoping for the labor market to prove the bears wrong. The dollar continues to hold its own as a safety play alongside the Swiss and Japanese alternatives where investors have become increasingly concerned lately about the prospects for further intervention.
Japanese yen – Officials from the Finance Ministry met with counterparts at the Bank of Japan today perhaps to discuss preparedness for further intervention to stem the power of the yen. The rising yen impacts the earnings of exporters as they convert overseas earnings back in to yen. Data overnight showed that exports from the nation dropped by 3.3% in July after falling by 1.6% in June clearly showing the impact of a rising currency. Ever-cheaper imports meanwhile continued to flood in at a 9.9% pace and similar to a gain during June. The yen remains in a narrow range against the dollar with dealers wondering who might dare unleash the wrath of the Bank of Japan as the unit heads towards its ¥76.25 March-time low. The dollar currently buys ¥76.61 yen.