30 Aug 2013
Flash: EUR/USD fortunes hang on QE – BMO Capital Markets
FXstreet.com (New York) - From a flows and funding basis, the most important difference between the EUR and the USD is that the latter is a “QE currency” whilst the former is not, notes Greg Anderson at BMO Capital Markets.
Key quotes
“This means that the USD’s transformation phase to being positively correlated with risk will be gradual. Indeed, the Fed’s July/August dovishness has already held things up. If the Fed extends the deadline for ending asset purchases under QE3, the correlation between the DXY and equities should become more negative.”
“If the Fed tapers, then jawbones, then tapers some more and then jawbones again, the correlation will fluctuate around neutral, or shift into and out of positive and negative territory. If the economic data are just so darn good and growth is so broadly positive that an increasing rate of Fed tapering fails to knock asset prices or developing market currencies severely lower, then the correlation will stay firmly within positive ranges.”
Key quotes
“This means that the USD’s transformation phase to being positively correlated with risk will be gradual. Indeed, the Fed’s July/August dovishness has already held things up. If the Fed extends the deadline for ending asset purchases under QE3, the correlation between the DXY and equities should become more negative.”
“If the Fed tapers, then jawbones, then tapers some more and then jawbones again, the correlation will fluctuate around neutral, or shift into and out of positive and negative territory. If the economic data are just so darn good and growth is so broadly positive that an increasing rate of Fed tapering fails to knock asset prices or developing market currencies severely lower, then the correlation will stay firmly within positive ranges.”