The withdrawal of Fed Chair candidate Lawrence Summers of his candidacy for Fed leadership has triggered a rally in risk assets, as he was considered as the more “hawkish” leaning candidate. However, despite the removal of what markets saw as the “hawkish candidacy”, we still expect the announcement of a modest tapering on the Fed’s meeting this week. The key question now is whether the size of the “tapering announcement” (if it materializes) matches what markets anticipate (which we believe lies somewhere in the neighborhood of US$10bn – US$15bn). Although we don’t discount intermittent market rallies, our bias is for the USD to be broadly stronger as we head into year‐end. For now, LATAM FX is opening stronger, riding the trend that has driven local markets on the aftermath of Summers’ withdrawal from the Fed Chair contest.
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Scotiabank