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5 Jun 2013
Flash: Fed mulls tapering options – UBS
FXstreet.com (Barcelona) - The Fed’s policy calculus looks to have changed qualitatively and this is a more direct driver of volatility, rather than data weakness.
In the face of a softpatch in Q2, even dovish members have stressed the need avoid over-interpreting the numbers and see reasons to entertain ‘tapering’. According to Research Analyst Gareth Berry at UBS, “Market discourse is presently heavily focused far more on the timing of such changes rather than any addition to easing, as that would be a change in the status quo to the dollar’s detriment.”
As such, the marginal policy impact of negative data is close to nil at this point, which limits scope for dollar debasement trades (e.g. gold). The realization that the next step will be liquidity withdrawal means that higher risk premiums are required. Resulting uncertainty is being priced in commensurately across asset classes.
In the face of a softpatch in Q2, even dovish members have stressed the need avoid over-interpreting the numbers and see reasons to entertain ‘tapering’. According to Research Analyst Gareth Berry at UBS, “Market discourse is presently heavily focused far more on the timing of such changes rather than any addition to easing, as that would be a change in the status quo to the dollar’s detriment.”
As such, the marginal policy impact of negative data is close to nil at this point, which limits scope for dollar debasement trades (e.g. gold). The realization that the next step will be liquidity withdrawal means that higher risk premiums are required. Resulting uncertainty is being priced in commensurately across asset classes.