Week in FX Americas – Is The Fed Taper Less Data Dependent?

The Fed is sign posting a near term taper, perhaps as early as next month, according to the October FOMC minutes released mid-week. The market has always been under the impression that tapering was data dependent. However, this may not be wholly accurate. Reading between the “transparent” lines its been suggested that US policy makers are very keen to pull back on liquidity, reducing their $85b a month bond buying program, even without an improvement on the US job front.

If one digs deeper it becomes obvious that the Fed is already discussing “concerns about the efficacy or costs of future asset purchases.” The main hurdle that the Fed members have had to over come is all to do with communicating their intentions very clearly to the market. Yellen, Bernanke and company has constantly been repeating, verbatim, that to “taper is not to tighten.” US short-term interest rates are expected to remain low for the foreseeable future. Collectively if they believe that they have adequately got this message across to the investor masses than there is no reason why tapering could not start as early as next month. The fixed income dealers will tell you that the steepening in the US 2’s/10’s curve would suggest that Capital Markets collectively have got the Fed’s message which gives them the green light to proceed with tapering under a ZIRP environment.

WEEK AHEAD

* USD Consumer Confidence
* GBP Gross Domestic Product
* USD Durable Goods Orders
* CHF Gross Domestic Product
* EUR German Unemployment Rate
* EUR German Consumer Price Index
* JPY National Consumer Price Index
* EUR Euro-Zone Consumer Price Index Estimate
* CAD Gross Domestic Product

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell