The Federal Reserve is flailing and global currency markets are in disarray. Notably, the Brazilian real dropped more than 10% in five sessions, before Thursday’s sharp recovery reversed much of the week’s loss. This week the Colombian peso dropped 3.0%, and the Chilean peso fell 3.1%. The Mexican peso dropped 1.9%. The Malaysian ringgit sank 4.5% for the week, with the South Korean won down 2.7% and the Indonesia rupiah losing 2.2%. The Singapore dollar fell 1.8%. The South African rand sank 4.4% and the Turkish lira fell 1.4%. Notably, market dislocation was not limited to EM. The Norwegian krone was hit for 4.4%, and the Swedish krona lost 2.0%. The British pound declined 2.3%. The Australian dollar also lost 2.3%.
Apparently alarmed by the market’s poor reaction to last week’s no hike decision, the Ultra-Dovish Fed this week attempted to slip on a little hawk attire. It’s looking really awkward. On Thursday evening, chair Yellen did her best to backtrack from last week’s FOMC statement with its focus on global issues. The markets are doing their best not to panic.
Securities markets have over the years grown too accustomed to knowing almost precisely what the Fed’s (and global central bankers) next move would be and what indicators were driving the decision-making (and timing) process. Transparency and clarity are hallmarks of New Age central banking. But chairman Bernanke back in 2013 significantly muddied the waters with his comments that the Fed was ready to push back against a “tightening of financial conditions.” Markets celebrated short-term ramifications: the Fed was overtly signaling it would react to “risk off” speculative dynamics.
And for more than two years, global market Bubble vulnerabilities ensured the Fed stayed firmly planted at zero. Meanwhile, the U.S. unemployment rate dropped to 5.1%. Stock prices shot to record highs, with conspicuous
Originally appeared at: http://davidstockmanscontracorner.com/the-new-world-financial-disorder/