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13 Sep 2013
Flash: EURUSD risk in the FED next week - BTMU
FXstreet.com (London) - Lee Hardman, FX Strategist at The Bank of Tokyo-Mitsubishi UFJ notes the main downside risks for the US dollar from next week’s meeting would be if the Fed decided not to begin tapering QE.
Key Quotes:
“…the main downside risks for the US dollar from next week’s meeting would be if the Fed decided not to begin tapering QE, and/or if the Fed also strengthened its commitment to maintain low rates perhaps by either lowering the 6.5% unemployment rate threshold or combining it with an explicit inflation threshold of say 2.0% which could act to push back rate hike expectations”.
“Our base case scenario is that the majority on the FOMC will remain comfortable with view that QE could be brought to an end by the middle of next year with the first rate hike then following in 2015”.
“It will also be interesting to see where FOMC participants see the fed funds rate at the end of 2016 compared to current market expectations of roughly around 2.50%. With the US dollar already trading weaker than implied by relative yield spreads heading into the meeting it will be difficult for recent US dollar weakness to extend much further following the FOMC meeting”.
“After the meeting US dollar direction will continue to be driven by incoming US economic data
with a strengthening activity and employment conditions appearing likely into year end supporting the US dollar”.
Key Quotes:
“…the main downside risks for the US dollar from next week’s meeting would be if the Fed decided not to begin tapering QE, and/or if the Fed also strengthened its commitment to maintain low rates perhaps by either lowering the 6.5% unemployment rate threshold or combining it with an explicit inflation threshold of say 2.0% which could act to push back rate hike expectations”.
“Our base case scenario is that the majority on the FOMC will remain comfortable with view that QE could be brought to an end by the middle of next year with the first rate hike then following in 2015”.
“It will also be interesting to see where FOMC participants see the fed funds rate at the end of 2016 compared to current market expectations of roughly around 2.50%. With the US dollar already trading weaker than implied by relative yield spreads heading into the meeting it will be difficult for recent US dollar weakness to extend much further following the FOMC meeting”.
“After the meeting US dollar direction will continue to be driven by incoming US economic data
with a strengthening activity and employment conditions appearing likely into year end supporting the US dollar”.