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20 Sep 2013
Why US Dollar weakness might be here to stay...
FXstreet.com (Barcelona) - As it has been well documented by now, the Federal Reserve 'lost its nerve' by making an extraordinary decision not to taper and blowing worldwide consent that they were indeed ready to start its timid QE exit.
Stanley Druckenmiller, an American hedge fund manager, and former President of Duquesne Capital, was in an interview with CNBC on Thursday, noting: "The big-money was betting that they were going to taper as is clear from the moves in gold, bonds, and stocks." Druckenmiller adds: "the Fed blew it... they had a freebie, they could have started the process to get us off the dope." Now, Druckenmiller believes, "is going to make it so much harder for the next Chairman to start the process."
The thoughts from Druckenmiller are a good preamble to adjust readers to the old context in which market participants had been heavily favourng a relatively pro-USD view on the assumption that QE was coming this year, yet that supposedly 'fairly safe assumption' has proven not so safe, with chatter now suggesting the idea of taper put on hold until early 2014.
What a QE taper in early 2014 means for the market?
Flashing back to May/June this year, the first time the Fed communicated its future intentions for a QE exit strategy, market took that first 'hint' very seriously, starting to immediately discount a scenario in which Fed, QE no longer are linked together.
Since that time, the market got rigorously governed by the timing of QE, with headlines all over about how the topic was no longer 'if' but 'when'. While that may still be true, it seems safe to assume that the can has now been kicked further down the road, with an increasing number of financial commentators highlighting the risk of 'no taper' until 2014.
If we throw into the equation a market that may start pricing the first light tapering in 2014, coupled with a higher degree of distrust towards the Fed communication policies, which only makes that pricing less aggressive until strong fundamentals, and not forgetting that the prime candidate to become next Fed Chairman - Ms. Yellen - has also been a perma-dovish since the GFC in 2008, the result of the equation points at greater risks of sustainable Dollar weakness for the near future.
Stanley Druckenmiller, an American hedge fund manager, and former President of Duquesne Capital, was in an interview with CNBC on Thursday, noting: "The big-money was betting that they were going to taper as is clear from the moves in gold, bonds, and stocks." Druckenmiller adds: "the Fed blew it... they had a freebie, they could have started the process to get us off the dope." Now, Druckenmiller believes, "is going to make it so much harder for the next Chairman to start the process."
The thoughts from Druckenmiller are a good preamble to adjust readers to the old context in which market participants had been heavily favourng a relatively pro-USD view on the assumption that QE was coming this year, yet that supposedly 'fairly safe assumption' has proven not so safe, with chatter now suggesting the idea of taper put on hold until early 2014.
What a QE taper in early 2014 means for the market?
Flashing back to May/June this year, the first time the Fed communicated its future intentions for a QE exit strategy, market took that first 'hint' very seriously, starting to immediately discount a scenario in which Fed, QE no longer are linked together.
Since that time, the market got rigorously governed by the timing of QE, with headlines all over about how the topic was no longer 'if' but 'when'. While that may still be true, it seems safe to assume that the can has now been kicked further down the road, with an increasing number of financial commentators highlighting the risk of 'no taper' until 2014.
If we throw into the equation a market that may start pricing the first light tapering in 2014, coupled with a higher degree of distrust towards the Fed communication policies, which only makes that pricing less aggressive until strong fundamentals, and not forgetting that the prime candidate to become next Fed Chairman - Ms. Yellen - has also been a perma-dovish since the GFC in 2008, the result of the equation points at greater risks of sustainable Dollar weakness for the near future.