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Flash: Markets more prepared for paradigm change in USD - OCBC Bank

FXstreet.com (Barcelona) - Emmanuel Ng of OCBC Bank notes that with the Fed chairman now having vocalized the tapering debate, markets may be a little more prepared for a paradigm change with regards to the broad dollar.

As such, he feels that a US-centric broad dollar story may continue to garner traction with the greenback attempting to exert pro-cyclical characteristics if the US data flow and Fed rhetoric continue to prove supportive in the coming months. However, he urges investors to note also that global central banks remain largely an asynchronous group at this juncture against a backdrop of lackluster global growth – giving the greenback an inherent potential advantage in the near term.

Ng believes that a deeper (albeit longer term) implication he thinks is that even though the Fed will likely be the first to pull the trigger in terms of gradually closing the liquidity spigot, he thinks similar questions will be asked of the other global central banks in the coming quarters as the post-Lehman period of a global liquidity surfeit attempts draw to a close.

Further, he feels that this paring of the global liquidity excess will undoubtedly have an impact across asset classes as the era of easy money draws to a close and the global economy (the real economy) would have to re-acquaint itself with the new reality. He finishes by writing, “At that juncture, the impact across asset classes (especially the potential impact on long term interest rates) we think would be increasingly predicated on global growth prospects and investor behavior would also be expected to be significantly more discerning.”

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