Hallway Talks About The USD
Submitted by Nic Lenoir of ICAP
Apparently this is the word going around the FX community this morning:
there is talk of a sources report out on the street.. that saying ECB might start talking down the EUR... concerned that Obama wants a weak currency... Chinese are acquiescing to weaker usd.. and eur twi has appreciated 5%.. and cny has depreciated vs eur... do NOT think this is new news.. as pointed out this morning - Erik Nielsen thinks that comments earlier this week on the EUR by Trichet signaled a new material level of concern on the EUR, i.e. For the first time he expressed concern on the EUR-TWI (which hit a new high for the year last night again) and mentioned that discussions should take place with some Asian countries on letting their currencies appreciate more - This seems to be stronger than his normal stock responses on FX of "against brutal FX moves" & "My friends in the US want a strong-USD).."
Other people have been quoting a Medley report. Overall though, I think for now the Fed has expressed concerns about consequences of excess liquidity but has not done anything to back it up. Certainly trying to start draining before year-end could cause disruptions in the market. They will get criticized if they do and the funding markets panic, but they will get criticized if they do nothing. While I think they should start draining and show the world (which shows no respect) that they won't bend to fear indefinitely, the most likely scenario is that they won't do a thing until they are cornered by market conditions or when there is no doubt the economy has fully and sustainably recovered... but there will always be risks, and at some point you have to take some.