27 Sep 2013
Flash: Don’t Fight the Fed, But Listening Too Closely May Be Hazardous Too – TD Securities
FXstreet.com (London) - Research teams at TD Securities noted how the Fed’s surprise decision not to begin reducing its
monthly asset purchases last week left most market participants scratching their heads.
Key Quotes:
“Something clearly went awry with their communication strategy if all forecasters were surprised by the decision, and remain just as surprised after reading the official statement, and hearing Bernanke’s Q&A session”.
“Even after listening to the parade of Fed speakers each day this week, there seems to be even less clarity on the outlook for QE from the Fed than there was prior to the September FOMC meeting”.
“Indeed by the admission of several Fed members themselves in recent days, their communication strategy has been misleading. Perhaps too much transparency is a bad thing”.
“Regardless of the Fed’s obvious miscommunication though (that was made clear by the market’s sharp reaction lower in yields and the USD), the end result is that there has been a reset on Fed policy expectations”.
“QE is now expected to continue in full force in the coming months, and in the view of our US strategy colleagues tapering will only begin in early 2014”.
“Last week we articulated the impact that a delayed start to QE tapering should have on the FX space. The overarching consequence boils down to a delay in the USD strength that we have been expecting”.
“…the core fundamental argument for a stronger USD over the long run remains unchanged (US growth outperformance, shrinking current account balance, and strides to improve the fiscal balance)”.
“…the conditions for the Fed to taper are arguably already present, and the debate is over when tapering should begin, not whether it should happen”.
“…we are unlikely to see US yields fall anywhere near as low as they were at the beginning of the year, and the same goes for the USD. We may see more sideways moves in the coming weeks and months, but our long term USD bullish call remains intact”.
monthly asset purchases last week left most market participants scratching their heads.
Key Quotes:
“Something clearly went awry with their communication strategy if all forecasters were surprised by the decision, and remain just as surprised after reading the official statement, and hearing Bernanke’s Q&A session”.
“Even after listening to the parade of Fed speakers each day this week, there seems to be even less clarity on the outlook for QE from the Fed than there was prior to the September FOMC meeting”.
“Indeed by the admission of several Fed members themselves in recent days, their communication strategy has been misleading. Perhaps too much transparency is a bad thing”.
“Regardless of the Fed’s obvious miscommunication though (that was made clear by the market’s sharp reaction lower in yields and the USD), the end result is that there has been a reset on Fed policy expectations”.
“QE is now expected to continue in full force in the coming months, and in the view of our US strategy colleagues tapering will only begin in early 2014”.
“Last week we articulated the impact that a delayed start to QE tapering should have on the FX space. The overarching consequence boils down to a delay in the USD strength that we have been expecting”.
“…the core fundamental argument for a stronger USD over the long run remains unchanged (US growth outperformance, shrinking current account balance, and strides to improve the fiscal balance)”.
“…the conditions for the Fed to taper are arguably already present, and the debate is over when tapering should begin, not whether it should happen”.
“…we are unlikely to see US yields fall anywhere near as low as they were at the beginning of the year, and the same goes for the USD. We may see more sideways moves in the coming weeks and months, but our long term USD bullish call remains intact”.