A story with a pre-term suspension of the QE2 in the US may likely become one of the central topics on FX in the coming weeks and months. First off, this is what Ben Bernanke said in the middle of this week while commenting on the situation in the economy and the monetary policy...
A story with a pre-term suspension of the QE2 in the US may likely become one of the central topics on FX in the coming weeks and months. First off, this is what Ben Bernanke said in the middle of this week while commenting on the situation in the economy and the monetary policy. Secondly, this is something federal funds rate futures signal to us and also Treasuries, which, despite the situation in Egypt, are rather falling than rising.
Moreover, thirdly, some certain Dollar bullish signals are related to the US macroeconomic data which may confirm the relevance of a pre-term suspension of QE2. Yesterday, for instance, we got decent Jobless claims data. Today, a note of positivity may be tied to Michigan sentiment index release. Next week, the focus will be on retail sales, Housing starts, Building permits and Phil Fed Index.
US 10-year Treasury March futures (CME)
US yield curve (Federal funds rate, CME)
UK-German 2-year bond yield spread (Bloomberg)
While evaluating the dynamics of Euribor futures and the US-German bond yield spreads, we come to a conclusion that there is literally no evidence for Euro strength. Such factors as who would succeed Trichet after his term ends and a rise of Portuguese bonds are adding fuel to the fire.
UK yield curve (3M Sterling, Liffe)
There is such viewpoint which suggests that current decline in GBP/USD is only a correction which may be followed with a sharp rise towards the 1.63 resistance. Everything currently depends on whether we get confirmation regarding BoE’s intention to raise interest rate in May or June. If we do, GBP/USD bulls may activate again.
The key events to watch are quarterly inflation report which will be published next week and BoE minutes in 2 weeks. In case Charles Bean joins the hawks Andrew Sentance and Martin Weale, Pound may likely appreciate.
Konstantin Bochkarev, currency strategist
of company Admiral Markets.
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