Fed Appears More Dovish on the Economy

U.S. dollar finds some strength in forex trading on risk aversion

Yesterday, the Fed issued its policy statement about the economy. Just a couple of months ago, the statement appeared almost optimistic, with the belief that the economy is more supportive of growth.

However, things have changed in the last little while. With European debt concerns, and continued trouble in the employment situation and the housing market, the Fed has softened its stance on the economy.

Indeed, GFT’s Kathy Lien reports in FX360, the Fed’s tone has turned more cautious:

This month’s statement did include a few changes, most of which pointed toward a worsening environment. The Fed said that “financial conditions have become less supportive of economic growth, largely reflecting developments abroad.” This is compared to their April meeting when they said that conditions were ‘more’ supportive of growth. By recognizing difficulties abroad, the Fed is to some extent acknowledging the fact that the U.S. will see some spillover from the European crisis.

The U.S. dollar moved lower on the economic fundamentals, but is now gaining some degree of strength in forex trading from the resulting risk aversion.

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