10 Dec 2013
Flash: QE taper/exit means stronger USD? - JPMorgan
FXstreet.com (Bali) - According to Kenneth Landon, FX Strategist at JP Morgan, caution is required assuming that the tapering and eventual end of QE3 necessarily means a stronger USD.
Key Quotes
"Other macro factors could easily overwhelm any positive impetus that the USD receives from the end of QE3. More important will be the relative direction of the major economies and consequent impact on market interest rates."
"The general consensus at the moment is that the U.S. will accelerate to growth approaching 3% in 2014, which in turn causes many investors to expect an appreciation of the USD. At the same time, the Fed is expected to start tapering QE purchases in early-2014 and the BoJ may announce new measures to ease policy after the consumption tax is hiked in April 2014."
"At the same time, the ECB is expected to ease policy further in its fight against falling inflation. Given the projections, the USD should trade with a firm tone in 2014. Many factors that will arise in 2014 are not known with certainty or even with a high degree of probability."
"The end of QE3 is a factor that should support the USD, but more important will be the actual performance of the U.S. economy and forward guidance about interest rates under the new Yellen Fed. Fiscal policy in the U.S. is becoming less contractionary, but would a pick up in growth cause the Fed to bring forward the first rate hike if inflation remains well below target? There are many moving parts. The end of QE3 is not by itself a factor that will push USD higher."
Key Quotes
"Other macro factors could easily overwhelm any positive impetus that the USD receives from the end of QE3. More important will be the relative direction of the major economies and consequent impact on market interest rates."
"The general consensus at the moment is that the U.S. will accelerate to growth approaching 3% in 2014, which in turn causes many investors to expect an appreciation of the USD. At the same time, the Fed is expected to start tapering QE purchases in early-2014 and the BoJ may announce new measures to ease policy after the consumption tax is hiked in April 2014."
"At the same time, the ECB is expected to ease policy further in its fight against falling inflation. Given the projections, the USD should trade with a firm tone in 2014. Many factors that will arise in 2014 are not known with certainty or even with a high degree of probability."
"The end of QE3 is a factor that should support the USD, but more important will be the actual performance of the U.S. economy and forward guidance about interest rates under the new Yellen Fed. Fiscal policy in the U.S. is becoming less contractionary, but would a pick up in growth cause the Fed to bring forward the first rate hike if inflation remains well below target? There are many moving parts. The end of QE3 is not by itself a factor that will push USD higher."