FX Week 10 March 2013

FX Week

Confidence in the US recovery is building

The USD continued to perform well last week, reaching new 7-month highs as US economic data remained firm culminating in an above consensus 236k rise in February non-farm payrolls. With the unemployment rate also falling to 7.7%, from 7.9% in January, US interest rates also rose as the markets continued to question how long the Fed would maintain its commitment to open-ended QE.
While doubts about QE are probably premature, and are probably more of an issue for H2 13, it remains true that the debate at the Fed this year is likely to be a very different one to those being conducted at other major central banks, where further policy stimulus is being considered. While last week saw the Bank of England (BOE), the European Central Bank (ECB), the Reserve Bank of Australia (RBA), Bank of Canada (BOC), and the Bank of Japan (BOJ) all stay on hold it seems likely that all considered the merits of easing monetary policy further. Indeed this was acknowledged by ECB President Draghi, who said that that a rate cut was discussed, while further QE in the UK and the BOJ appears to be just a matter of time. The RBA also maintained an easing bias, while the BOC for the first time in a while adopted a more dovish stance. This leaves the Fed as the only major central bank with a question building about when to ease its foot off the stimulus pedal.
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