FX Week 18 August 2013

FX Week

Summer ‘health warnings’ for FX

After threatening to break higher at the beginning of the summer the USD has fallen back in recent weeks, dampened by the signs of improving growth in the Eurozone, UK and China, as well as by the ongoing uncertainty about whether and when QE will begin being ‘tapered’ by the Fed. From appearing almost a ‘foregone conclusion’ in late June, there is still, even now, considerable uncertainty about whether a September FOMC ‘tapering’ will actually be announced. According to Bloomberg, 65% of global economists expect the Fed to begin tapering in September, no longer the near unanimity seen in late June. However, such negative effects on the USD we believe are also being magnified by issues of liquidity and the seasonal thinness of the FX market in the summer months. Usually we think it is sensible to apply a ‘health warning’ to the currency movements seen in July and August, and this year, we believe, is no exception.

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