FXStreet (Delhi) – Derek Halpenny, European Head of GMR at MUFG, suggests that just as the RBA statement signalled that it was developments abroad that were being focused on, comments from Fed Vice Chair Fischer confirmed this to be the case as well at the FOMC. Key Quotes “The FOMC is unclear whether the financial market turmoil will lead to a persistent tightening of financial market conditions, resulting in a slowing of the global economy and inflation in the US. What is somewhat concerning in that regard was the Senior Loan Officer survey data released by the Federal Reserve that revealed a tightening in lending standards for commercial and industrial loans in Q4 2015, with uncertainty surrounding economic forecasts driving that tightening. The survey also showed an expected further tightening in Q1 2016. The collapse in the energy sector was another source of worry as was the expectation that interest rates on many types of loans would increase. That looks to us an obvious channel where financial market turmoil creates uncertainty that then fuels caution and a tightening of lending standards which undermines growth. We now think it unlikely that the FOMC will raise the federal funds rate at the next meeting on 16th March. But we are not convinced that this scenario for the US necessarily means much for the dollar. What may well be happening now is that the dynamic behind the support for the US dollar is changing again. From the outset of the current dollar bull run in mid-2014, the fuel for dollar demand was more driven by the actions of central banks abroad rather than from the Fed. That then changed last summer when expectations of Fed rate hikes intensified through to when the first rate increase was implemented in December. Even if the Fed moves to the side-lines through at least until the summer, it is actions by the BoJ, ECB BoC, RBNZ and possibly the RBA that will help keep the dollar well supported. ECB President Draghi spoke yesterday and it was clear from his comment that “falling inflation expectations call for careful analysis” that the ECB is seriously considering some additional action when it meets next month. That will limit the upside potential for the euro.” For more information, read our latest forex news.