Flash: North America outlook - BoTM

FXstreet.com (London) - Derek Halpenny at The Bank of Tokyo-Mitsubishi UFJ, Ltd said the decline in the implied yield of the federal funds rate in March 2015 is unlikely to continue much further. He expect today’s communication from Chairman Bernanke to include the following: 1) that QE3 tapering in the coming months is possible; 2) but that the timing is dependent on incoming economic/market information; 3) that tapering is merely about slowly taking the foot off the accelerator rather than putting the foot on the brake and 4) that the time for the brake (raising the federal funds rate) is still unlikely before 2015.

He continues to suggest the fact that tapering is dependent on incoming data will be emphasised, as it is the flexibility of QE3 that makes this time different to the sharp declines in asset prices after the end of QE1 and QE2. When the dust settles, he expects the dollar to hold in and slowly begin to strengthen once again as the incoming data starts to confirm the probability of tapering in September or October.