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12 Jul 2013
Flash: Fed-based perceptions improving? – BMO Capital Markets
FXstreet.com (New York) - According to Stephen Gallo at BMO Capital Markets, “We feel the state of FX and other classes earlier today may actually reflect an overall improvement in participants’ perceptions of Fed intentions.”
If we’re correct in this regard, the failure of the USD to seek out new, lower ranges alongside a nice bid in most European equity and sovereign debt markets would fit nicely with the notion that “yes” the Fed does intend to start tapering QE within the foreseeable future, but “no” that tapering will not be aggressive, and nor will it initiate steps towards a higher Fed Funds rate.
“We continue to lean away from consensus criticisms that the Fed has seriously failed in its communication strategy with the financial markets, along the lines of its plans to start tapering QE.” Gallo adds. Based on capital flows evidence, and the very numerous layers of Fed accommodation (ultra-low rates, guidance, QE1-QE3 and the latter’s open-ended nature) we don’t see the Fed as having a communications problem as much as it actually has an “easing” problem.
If we’re correct in this regard, the failure of the USD to seek out new, lower ranges alongside a nice bid in most European equity and sovereign debt markets would fit nicely with the notion that “yes” the Fed does intend to start tapering QE within the foreseeable future, but “no” that tapering will not be aggressive, and nor will it initiate steps towards a higher Fed Funds rate.
“We continue to lean away from consensus criticisms that the Fed has seriously failed in its communication strategy with the financial markets, along the lines of its plans to start tapering QE.” Gallo adds. Based on capital flows evidence, and the very numerous layers of Fed accommodation (ultra-low rates, guidance, QE1-QE3 and the latter’s open-ended nature) we don’t see the Fed as having a communications problem as much as it actually has an “easing” problem.