Week In FX Americas – It’s Still About The Fed in 2014

Central banks’ monetary policies are expected to remain highly simulative and somewhat innovative in 2014. The Fed (soon-to-be under new leadership) will provide stronger forward guidance and it will reduce its monthly asset-purchase program. Other central banks will have to adapt to any move the Fed makes. With global rates remaining “lower for longer”, it would suggest more market opportunities in other asset classes like equities. However, investors have yet to experience how a Fed taper will play out.

The Fed requires the “terrible twos” to be constant before tapering will be seriously considered:

1. U.S. growth more than +2%;
2. Inflation greater than +2%;
3. Nonfarm payrolls to print employment numbers in the +200k’s.

The forex market is under the impression that any notion of Fed tapering is data-dependent. This may not be wholly accurate. Reading between the “transparent” lines, it’s been suggested that U.S. policymakers are increasingly keen to pullback on liquidity and reduce the Fed’s monthly bond-buying program, with or without any noticeable improvement on the jobs 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 for the Fed to overcome has to do with communicating its intentions concisely. The steepness of the U.S. Treasury yield curve suggests that it so far has succeeded in getting its message across clearly to investors – front rates remain low, while the long-end has backed up. The Fed is required to partake in a fine balancing act – too much tightening too fast could cause an unsightly global domino effect.

Please read more in Global Currencies Forecast: 2014

• Gold Erratic on Fed Action Speculation
• Oil Takes a Hit From Soon To Reopen Lybia Ports
• US Wholesale Prices Fall in November
• Fear Is In The Air – VIX Trader Buys $5.1 Million in Calls Expecting 50% Jump In Volatility
• U.S. Dollar Rallies after Retail Sales Gained
• Mixed Bag of U.S. Data
• Global Stock Markets Fall on Fed Taper Expectation
• Mexico Energy Bill Close to Final Approval
• US Retail Sales Rise in November
• US Foreclosures Drop to 7 Year Low
• Fischer Eyes Off No. 2 Fed Post
• Another Take on the U.S. Budget Deal
• U.S. Budget Deal to Ease Spending Cuts
• U.S. Retail Sales Expected to be Strong
• US Lawmakers Agree to Budget Deal
• US Stocks Waiting for Budget Deal Reaction
• U.S. Dollar Index Near Six Week Low
• Repeat of 2013 Shutdown Avoided With Budget Deal
• U.S. Dollar Drop sees Gold to 1267
• The US Federal Reserve Turns 100 Years Old
• Small Taper In December “Best Move” – Bullard
• Volatility In Gold To Continue Until QE Uncertainty Clears
• Fed Expecting to Taper Next Year

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