Forex Weekly Report

The release of the Fed’s minutes illustrated that the critical decision to start of the tapering stemmed primarily from an increase confidence in the strength of the US recovery. Furthermore, the reinforcement of the forward guidance highlights the Fed’s objective to decouple the tapering process from any interest rate decisions. As a result, the pertinence of the 6.5% unemployment threshold has been lowered, while more focus has been placed on the inflation outlook. With current inflation well below its 2% target, the first rate hike could easily occur only in 2016. On the other hand, although tapering is on no preset path, further “measured steps” are likely in the next meetings. However, the Fed is likely to be very cautious to avoid an unintended tightening of financial conditions, which could damage the ongoing US recovery.