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Flash: Fed may consider paring asset purchases - OCBC Bank

FXstreet.com (Barcelona) - Emmanuel Ng of OCBC Bank notes that after a choppy session, the major currencies ended mixed against the dollar on Thu with the cyclicals (NZD, AUD, CAD) notably weaker on the day across G10 space.

He begins by commenting that late in the NY, dollar bulls were however encouraged after the remarks from the Fed’s Williams indicating that the Fed may consider paring its asset purchase program late this year if the labor market continues to strengthen. However, he continues to note that the remarks were not a watershed for the dollar given the softer than expected US data flow (Philly Fed, CPI and initial claims last night) this week. He writes, “On this front, our MSIs (Macro Surprise Indices) for the US economy have also been soft of late.”

Looking ahead, Ng feels that the conditionality attached to the quantitative triggers for a Fed exit remain in place, indicating that dollar fortunes are expected to remain a function of data as much as Fed speak, with the former not giving an explicit green light as yet. However, he feels that Fed communication may well be gradually morphing into a less dovish animal, with Williams joining Fisher, Lacker and Plosser this week in painting a more optimistic picture and addressing a tapering of the asset purchase program. Meanwhile, Ng finishes by noting that given the current asynchrony of expected monetary policy responses by different global central banks, any further hints from the Fed on this front may see the commodity/growth linked currencies bear the brunt of dollar bullishness.”

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