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18 Jun 2013
Flash: USD recovery no sure thing – RBS
FXstreet.com (New York) - Arguably, the greatest challenge to the market’s recent “mine, everything” mantra has been the threat of a withdrawal of global liquidity.
According to the RBS Research Team, “The rise in US Treasury yields appears to reflect the market's concern that the Fed is prioritizing asset class volatility over inflation/growth. The strength of the US economy, or rather the lack of it, suggests that real yields need to stay very low, most probably negative. However, with inflation low and nominal yields rising, real yields have actually been rising fairly quickly.”
Markets are set to hear from the US central bank at Wednesday’s FOMC meeting. It’s likely that the Fed will be happy to see that some of the intense heat has been taken out of the equity market. Higher mortgage rates will most likely be of more of a concern.
It’s possible that the Fed signals a continued easy monetary policy stance through to year-end, knocking back market expectations of a tapering of its asset purchases as early as September. However, “it’s not clear that risk markets will recover in response as other drivers of the recent market correction remain. The USD may also continue to perform poorly.” the team adds.
According to the RBS Research Team, “The rise in US Treasury yields appears to reflect the market's concern that the Fed is prioritizing asset class volatility over inflation/growth. The strength of the US economy, or rather the lack of it, suggests that real yields need to stay very low, most probably negative. However, with inflation low and nominal yields rising, real yields have actually been rising fairly quickly.”
Markets are set to hear from the US central bank at Wednesday’s FOMC meeting. It’s likely that the Fed will be happy to see that some of the intense heat has been taken out of the equity market. Higher mortgage rates will most likely be of more of a concern.
It’s possible that the Fed signals a continued easy monetary policy stance through to year-end, knocking back market expectations of a tapering of its asset purchases as early as September. However, “it’s not clear that risk markets will recover in response as other drivers of the recent market correction remain. The USD may also continue to perform poorly.” the team adds.