Treasury Secretary Tim Geithner said to plan departure before debt ceiling reckoning. Jack Lew likely to replace
It has been an exciting start to the year for the U.S. dollar. The Fiscal Cliff drama and the FOMC minutes increased the volatility for many currencies pairs, with USD first weakening significantly and then substantially recovering grounds. Gold fell from a high of 1,685 to a low of 1,635 and Euro fell by about 300 pips during the same period. Even yesterday's non-farm payrolls report managed to trigger a knee jerk volatility in the EUR/USD followed by a small trend continuation in the hours that followed.
So what is the game changer?
Although there was nothing significant to how the fiscal cliff negotiations settled, vibes that the Fed is willing to cut spending is a fresh direction. While the Fed is not expected to make a decision about ending QE3 for at least next 4 to 6 months, the fact that they are even considering terminating QE3 in 2013 is in our opinion, a game changer for the U.S. dollar. Investors will start to look at U.S. economic data differently. Previously, the general belief was that the Fed wasn't going change monetary policy for the next 1 to 2 years but the FOMC minutes told a very different story - even before knowing the resolution to the U.S. Fiscal Cliff some Fed officials considered ending asset purchases in mid 2013. If economic data continues to improve, investors will start to consider this possibility more seriously. As a result, we expect U.S. economic reports to have an increased importance to the greenback, which means the potential for larger reactions in the US dollar.
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