FBS: Fed brought more uncertainty
So, the Federal Reserve has surprised the majority of players yesterday by not tapering its massive stimulus program, while nearly two-thirds of market participants were waiting for a QE reduction by roughly $10 billion.
US dollar now returned to the levels seen well before the Fed’s Chairman Ben Bernanke first spilled out the idea of tapering the stimulus in May. Risk assets rallied yesterday. However, it’s necessary to understand that the uncertainty won’t disappear. Everyone understands that sooner or later the Fed will have to start reducing QE – there will be now a speculation about when this is going to happen. Such speculation will provide USD a bit of support – enough for corrections in its weakening trend. We’ve seen that the recent data released in America was lower than expected and the Fed downgraded US economic forecasts. This makes us think that the doves in the Fed may rule the game in the next months.
There are only 2 more scheduled policy meetings this year, one in October and one in December.