EUR USD (1.3085) Yesterday’s correction across the asset classes and particularly in the US treasuries market has once again persuaded some economists to dwell on the prospects of QE by the Fed. One prominent observer has gone to the extent of claiming that the QE announcement by the Fed could be expected after Fed meetings in April or latest in June. Indeed such a claim suits those who have missed out on the latest slide in the bond market. But it can hardly be expected that the Fed changes its strategy within the short period where the data has not changed significantly. In reality, after refusing to speculate on the prospects of QE3 in his testimony in the Congress a few weeks ago, Ben Bernanke has hardly communicated any change in his perception about the ‘moderate’ economic recovery. Even the latest speech on Wednesday, wherein he mentioned that the recovery had been frustratingly slow, Bernanke nonetheless spoke of improvements in the economy. The underlying message is that the economy has improved moderately, but is not out of the woods. The Fed has never ruled out more QE but the bar was and remains high. So it is pointless for market commentators’ opinion to swing wildly one way and then the other around what is a remarkably smooth and deliberately transparent policy path. Yesterday’s moderate firmness failed to hoist the euro above 1.3225, the stabilisation point. To the downside the risk of a slide to 1.2930 or even below remains.
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