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Forex Flash: FX correlations have popped higher– JP Morgan

FXstreet.com (London) - As has occurred about twice a year during the post-Lehman era, as JP Morgan puts it, a global rates sell-off is ripping through currency markets while the dollar has rallied versus 70% of currencies. JP Morgan tells us that FX correlations have popped higher, saying that this comes at the end of ultra easy Fed policy due to a firming labor market and prepositioning for the end of QE is sensible.

"Pre-positioning for the end of QE is sensible even as the announcement of the start of tapering would only come in Q4. Prepositioning for the end of easy money is not, since changes to funding rates are two years away, over which time a lot of current weakness outside the US will likely reverse. If tapered QE3 is the only adjustment to Fed policy over the next six months, 10-yr US yields may not break this year’s range and the trade-weighted dollar would be unlikely to rally more than another 2%. In the interim, a lot of the non-US cyclical weakness which has characterized 2013 is likely to reverse’’ wrote Jan Loeys, US, of JP Morgan.

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