19 Sep 2013
Flash: Fade rallies in "risk on" currencies post FOMC - HSBC
FXstreet.com (Barcelona) - Despite the ''no taper' induced sell-off in the US Dollar, following the dovish outcome by the FOMC, HSBC Global Research is looking to fade any rally in "risk on" currencies, both in G10 and EM.
Key Quotes
"The short-term reflex on this surprise announcement of unchanged policy may be to buy risk on currencies on relief that the Fed has not reduced its policy accommodation. However, given the Fed's previous guidance, as well as the strong probability that tapering will still be forthcoming, probably before year-end, we are less convinced this will result in the kind of sustained boost to risk appetite that might typically support some "risk on" G10 currencies such AUD."
"If the outcome generates more uncertainty about policy and the Fed's intentions, it could reduce risk appetite in a manner that would put downward pressure on those same currencies. Markets dislike uncertainty. This outcome will only add to that."
"If the Fed is not tapering yet, it should be based on concerns about the outlook for US growth, which would hardly be a positive development for the USD. In that scenario, some of the other safe haven currencies in the G10 would be more likely to outperform, such as the JPY and CHF. Indeed, even the EUR and GBP will have opportunity to benefit against the USD, particularly given the contrast of improving economic data in the Eurozone and UK."
Key Quotes
"The short-term reflex on this surprise announcement of unchanged policy may be to buy risk on currencies on relief that the Fed has not reduced its policy accommodation. However, given the Fed's previous guidance, as well as the strong probability that tapering will still be forthcoming, probably before year-end, we are less convinced this will result in the kind of sustained boost to risk appetite that might typically support some "risk on" G10 currencies such AUD."
"If the outcome generates more uncertainty about policy and the Fed's intentions, it could reduce risk appetite in a manner that would put downward pressure on those same currencies. Markets dislike uncertainty. This outcome will only add to that."
"If the Fed is not tapering yet, it should be based on concerns about the outlook for US growth, which would hardly be a positive development for the USD. In that scenario, some of the other safe haven currencies in the G10 would be more likely to outperform, such as the JPY and CHF. Indeed, even the EUR and GBP will have opportunity to benefit against the USD, particularly given the contrast of improving economic data in the Eurozone and UK."