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11 Mar 2015
Fed not worried by dollar's strength – TDS
FXStreet (Barcelona) - Shaun Osborne, Chief FX Strategist at TD Securities, assesses the scenario revolving around USD strength and Fed, noting that the market view for excessive dollar strength making the Fed cautious might be termed flawed.
Key Quotes
“Judging by the tone of some of the commentary going around yesterday, the USD really should be worried that market participants are worried that the Fed is worried about the USD. Except that the Fed, as far as we can see, is not that worried about the USD—beyond the noted recognition, echoed by the White House CEA head—that the stronger USD is a headwind for the US economy.”
“White House economic advisor Jason Furman’s USD comment yesterday caused a brief setback for the USD but the remark came in response to a question—rather than a statement—and Furman made it clear that US Treasury Sec. Lew was responsible for USD policy. This was hardly a White House-led beat down of the USD bulls.”
“Still, if markets believe the USD is on the Fed’s radar, the USD rally slow or stabilize ahead of the March 18th FOMC meeting. Gains should resume broadly thereafter if the patience reference is indeed lifted from the policy statement, as we expect.”
“WSJ Fed-watcher Hilsenrath’s brief, online preview of the Fed meeting yesterday suggested that the Fed was growing in confidence that it can drop “patience” next week, citing two developments—1) no “tantrum” in response to Chair Yellen’s suggestion at her congressional appearance last month that she was inclined to adjust the Fed’s language and 2) the February employment data.”
“Hilsenrath may not be the definitive oracle on the Fed but the absence of any reference to the USD suggests that this is not perhaps as big a worry for the Fed as the markets assume. The only reason for concern is if the EUR decline starts to become disorderly.”
Key Quotes
“Judging by the tone of some of the commentary going around yesterday, the USD really should be worried that market participants are worried that the Fed is worried about the USD. Except that the Fed, as far as we can see, is not that worried about the USD—beyond the noted recognition, echoed by the White House CEA head—that the stronger USD is a headwind for the US economy.”
“White House economic advisor Jason Furman’s USD comment yesterday caused a brief setback for the USD but the remark came in response to a question—rather than a statement—and Furman made it clear that US Treasury Sec. Lew was responsible for USD policy. This was hardly a White House-led beat down of the USD bulls.”
“Still, if markets believe the USD is on the Fed’s radar, the USD rally slow or stabilize ahead of the March 18th FOMC meeting. Gains should resume broadly thereafter if the patience reference is indeed lifted from the policy statement, as we expect.”
“WSJ Fed-watcher Hilsenrath’s brief, online preview of the Fed meeting yesterday suggested that the Fed was growing in confidence that it can drop “patience” next week, citing two developments—1) no “tantrum” in response to Chair Yellen’s suggestion at her congressional appearance last month that she was inclined to adjust the Fed’s language and 2) the February employment data.”
“Hilsenrath may not be the definitive oracle on the Fed but the absence of any reference to the USD suggests that this is not perhaps as big a worry for the Fed as the markets assume. The only reason for concern is if the EUR decline starts to become disorderly.”