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Flash: Markets considering whether USD will benefit from tapering - DBS Group

FXstreet.com (Barcelona) - DBS Group analysts note that the past week’s volatility is giving the market second thoughts as to whether the US dollar will benefit from the Fed tapering asset purchases.

They note that US stocks peaked on May 22, the day Fed Chairman Ben Bernanke testified before the Joint Economic Committee. They add that the FOMC minutes for the May 1 meeting were also released that day and while Bernanke signaled that the decision to increase or decrease asset purchases will depend on how jobs/inflation data evolve going forward, the minutes saw more members favoring tapering. They write, “As far as equity bulls are concerned, US stocks peaked and corrected downwards after QE1 and QE2 ended in March 2010 and June 2011 respectively.” In any case, they note that US stocks retreated the following day (May 23) on the Nikkei’s rout and disappointing data from China. They finish by commenting, “The US dollar also returned gains in the last two days of last week. Against this background,the most important data this week is probably the PCE core deflator on Friday (May 31). The inflation gauge fell to 1.1% YoY in March from its peak of 2.0% in the same month last year. This was also the last low seen in December 2010.”

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