Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Fed Taper Is Almost Dead Certainty But May Not Trigger USD Rally Yet

Currencies / US Dollar Dec 12, 2013 - 05:48 PM GMT

By: Submissions


Justin Pugsley writes: The economic and political hurdles for the US Federal Reserve to taper its bond purchases are steadily being removed making it almost a dead certainty – but don't expect it to necessarily spur a USD rally, at least not yet.

It appears Democrats and Republicans are closing in on a deal over the US budget, which looks likely to avoid a confidence damaging shut-down of the US government early next year.  On the economic front the surprisingly strong US jobs numbers last week and positive revisions to GDP are powerful incentives to start reining in the Fed's $85 billion a month bond purchasing programme. 

Given the level of debate over the Fed's taper it is unlikely to come as much of a surprise to anyone when it actually begins. In other words the forex markets have largely priced it in. The only real question will be by how much. Given some reservations within the Fed it will probably be relatively small initially, but could be announced as early as the December 17-18 policy meeting.

However, Fed officials may delay the taper to sometime in Q1. Inflation numbers remain relatively benign and they may feel that they want more evidence that the economy really is improving. After all the Fed is targeting an unemployment rate of 6.5%, it's currently 7%. The low labour participation rate – at under 63% – is also a concern. It's at its lowest since 1978 and has been deteriorating. And this has negative implications for long-tern economic growth.

Growing confidence in EUR/USD

A modest taper?

Given these mitigating factors the Fed's quantitative easing programme may well continue throughout next year and will only be reduced very gradually. That will of course depend on the strength of the US economy. Any signs of economic weakness are likely to see the Fed pause the pace of the taper.

However, the outlook for the USD also depends on what's happening with its trading partners. Japan remains committed to re-inflating its economy through massive stimulus measures, suggesting the outlook for JPY remains bearish and particularly so if perceptions of risk also diminish next year.

For EUR/USD the picture is more complicated. The European Central Bank has signalled that its monetary policy will remain very accommodative far into the future. It also sees downside risks for the world economy – not least from the Fed's taper. That's all bearish.

On the other hand, the Eurozone is inching towards a mechanism for rescuing struggling banks. Yet another factor is that peripheral Eurozone economies have shown improvements this year and that could be followed through into 2014. These two factors would be bullish for EUR and would eventually sway the ECB's monetary policy.  It also boosts confidence in the survival of the EUR.

The UK is closer to the US in that it has a strengthening economy. The Bank of England has become increasingly hawkish. It has already withdrawn a special support scheme for mortgages. And has flagged its concerns over soaring real estate prices and stands by to pop any potential bubble if needed.

Nonetheless, the central bank wants to maintain an accommodative monetary policy to support consumer spending and business investment. For as long as the markets are not focussing on the UK's huge current account deficit – the outlook for GBP/USD remains bullish.

By Justin Pugsley, Markets Analyst MahiFX

Follow MahiFX on twitter at:

Disclaimer: This material is considered a public relations communication for general information purposes and does not contain, and should not be construed as containing, investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. MahiFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided.

The use of MahiFX’s services must be based on your own research and advice, and no reliance should be placed on any information provided or comment made by any director, officer or employee of MahiFX. Any opinions expressed may be personal to the author, and may not reflect the opinions of MahiFX, and are subject to change without notice.

About MahiFX

MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading.

MahiFX global operations are headquartered in Christchurch, New Zealand with offices in London, UK with development and support teams in both locations for 24 hour service. The company is regulated by The Australian Securities and Investments Commission (ASIC), Australia’s corporate, markets and financial services regulator.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules