Euro Slips, Dollar Recovers After Decline

Asian stock markets saw prices fall this morning for the second consecutive day as investors remain cautious ahead of next week’s Fed meeting, where monetary stimulus measures will be decided.

On the Tokyo Stock Exchange, the Nikkei index was down about 0.5 percent at 7:30 AM, while stock prices in Singapore, Australia, Hong Kong, South Korea, and Shanghai fell between 0.1 and 1.0 percent.

The MSCI Asia-Pacific index, excluding Japan, was down 0.7 percent at 7:30 AM, weakening for the second day in a row.

This index had been rising continuously for 10 days, strengthening nearly 8 percent during that period, prompting investors to take some profits off the market this morning.

As fears of a U.S. military strike on Syria subsided, the focus shifted to the Fed. Next week, leaders of the U.S. central bank may reduce the $85 billion monthly purchase programs for government and mortgage-backed securities.

The Fed’s quantitative easing programs have supported stock price growth for years, and investors fear that reducing them could lead to a significant loss of market support.

“The Fed wants to gradually withdraw from the market. However, the possibility of reducing monetary stimulus measures is already priced into the markets, so it should not negatively impact them unless the reduction in bond purchases is greater than expected,” says Tomochika Kitaoka, a strategist at Mizuho Securities.

All recent data indicates that the U.S. economy is growing, but not convincingly, so investors hope that the reduction in stimulus measures will not be too sharp.

Analysts in a Reuters survey had expected a $15 billion monthly reduction in the Fed’s bond purchase programs before the recent employment data in the U.S., but since that data was weak, the latest survey anticipates a $10 billion reduction.

“However, if the Fed’s messages after the meeting are unclear again, it could create uncertainty in the markets and lead to a rise in yields on U.S. bonds, causing stock prices to fall,” says Kitaoka.

Meanwhile, in the currency markets, the dollar has recovered after yesterday’s significant decline.

The euro exchange rate slipped to $1.3270 this morning, while it was $1.3324 at the same time yesterday.

The dollar also strengthened against the Japanese currency, rising from yesterday’s 99.50 to 99.80 yen.

The euro exchange rate against the Japanese currency remains stable around 132.50 yen.

After rising by one dollar yesterday, the futures price of oil on the New York exchange is stable around $108.60 per barrel this morning.