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USD Outlook: Risk Appetite Versus Fed Taper Plans

By Kathy LienForexOct 20, 2021 06:34PM ET
www.investing.com/analysis/usd-outlook-risk-appetite-versus-fed-taper-plans-200605753
USD Outlook: Risk Appetite Versus Fed Taper Plans
By Kathy Lien   |  Oct 20, 2021 06:34PM ET
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Stronger than expected earnings drove the Dow Jones Industrial Average to record highs. Despite Delta variant fears, rising prices and supply-chain shortage, bulge bracket U.S. companies are thriving. More than 85% of S&P 500 companies that reported as of Tuesday beat expectations in the third quarter. Results like these hardens the case for tapering by the Federal Reserve in November. Normally, the prospect of taper should be positive for the U.S. dollar and in many ways, it has for USD/JPY, which rose to its strongest level since November 2017. However, that’s where the greenback’s gains end as it traded lower against other major currencies. 
 
Proper policy communication has long been one of the most important jobs of the central bank, especially when major changes are anticipated. The fact that the U.S. dollar is not soaring with less than two weeks to the FOMC meeting is a testament to the Fed’s success. It said it would prepare the market for any change and it has done a decent job doing so. There’s little doubt that it won’t act in November and, by now, investors have completely priced in the move. This explains why good data and record-breaking moves in equities did not drive the U.S. dollar higher. 
 
The Beige Book report was also slightly more downbeat, with reports of slower growth. More specifically, it said: “Outlooks for near-term economic activity remained positive, overall, but some districts noted increased uncertainty and more cautious optimism than in previous months.” 
 
Ultimately the greenback is a safe-haven currency, and with stocks hitting record highs, investors are moving their money into riskier currencies, like the Australian and New Zealand dollars. They are more sensitive to global growth and the ebbs and tides of the global economy.
 
Although, sterling and the Canadian dollar traded higher today. U.K. inflation data fell short of expectations, while Canada’s CPI report beat. Consumer prices grew 0.3% in the month of September, down from 0.7% the prior month in the U.K. Year-over-year growth eased to 3.1% from 3.2%. Many economists are warning investors not to the fooled by this downshift because the slowdown was largely due to a measurement quirk. A meal subsidy scheme in August pushed up last month’s inflation readings. High price pressures remain a problem that worries the Bank of England. In Canada, CPI rose 0.2%, slightly more than expected. Year over year, the annualized pace of growth rose to 4.4% from 4.1%. USD/CAD dropped to fresh three-month lows in response. The Australian and New Zealand dollars continued to lead the gains. The euro also participated, thanks to stronger German producer prices.   
USD Outlook: Risk Appetite Versus Fed Taper Plans
 

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USD Outlook: Risk Appetite Versus Fed Taper Plans

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Comments (9)
Ricardo Diogo
Rcd72 Oct 21, 2021 1:21AM ET
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rising rates is the last viable, tapering should be total , why keep adding liquidity , debt, risk ?
William Bailey
William Bailey Oct 20, 2021 10:00PM ET
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Cant wait til the 1929’style crash hits! Irresponsible credtit is at an end … the world is leveraged to the max!! Just like 1929 we are hitting the credit limit as leverage all in . A week, a day, a month … naybe a few months , but sooner than you think
Paul Browning
Paul Browning Oct 20, 2021 9:55PM ET
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I don't understand nor do I agree with your statement that the actual beginning of tapering is fully priced into the market. We're making new highs because WS thinks the FED will continue to prop up a market that is hugely overpriced compared to past norms. Some options are priced as if going down is impossible. At some point reality will return and meme stocks will not be priced based on support on Robin Hood.
William Bailey
William Bailey Oct 20, 2021 9:55PM ET
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The problem is the entire world is hitting a credit limit. 1929 crash resulted from the limited credit of the time and less of a world economic system. The geniuses gave also learned to leverage more , but that requires investors and printing in unison … notice other countries tapering fast ?! Thatmeans buyers of debt will get scarce going forward. With a need fir greater and greater piles of cash , but fewer buyers the yields will move skyward…without the Fed raising rates . That is already an issue . Cant generate credit without buyers… This means fewer buyers , less money to buy and asset deflation on a massive scale!!
William Bailey
William Bailey Oct 20, 2021 9:55PM ET
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William Bailey
William Bailey Oct 20, 2021 9:45PM ET
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Fed pumped 280 b towards markets from Oct 1 to october 16 … 80 b in QE and 200 b on reverse repo market !!! That is why the chump coins are going nuts and stocks up a couple percentage points… not real
York Regent
York Regent Oct 20, 2021 9:10PM ET
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All signs appeal to tapering kathy. But with huge supply chain bottleneck and consequent impact on prices poibting to an inflation is a fluke. Wall street performance is a new normal and going to be so moving foreard with the new economy is not a parallel to the historic inflation ticker. It may be too early for tapering when majotity of thecrest of this world is still reeling from the exobomic devastation the pandemic caused to theor economy. I wonder if the Is getting it wrong !
William Bailey
William Bailey Oct 20, 2021 9:10PM ET
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Should never have QE , never ever . Its charity for the wealthy and does not get to those who need it. Cut that off 13 years ago and we would not be in this mess
Filippo Bulgarini d Elci
Filippo Bulgarini d Elci Oct 20, 2021 9:04PM ET
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U're smart Kathy... How do u think they'll taper as they promised? Inflation is skyrocketing, job market is not picking up as expected, energy prices are flying... Usd will go down, Gold will move to 2k before eoy...
William Bailey
William Bailey Oct 20, 2021 9:04PM ET
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The free fed money to the markets is over , has been tapering since march. Fed selling on reverse repo , but occasionally buying up ( like this month to funnel credit to stock, but unfortunately making way to crypto chump coins) . Fed selling treasuries already , but buffering too . World is out of credit! Your stocks and assets are setvto devalue massivly
mochamad Khasan
mochamad Khasan Oct 20, 2021 9:03PM ET
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Hello i am new for investment and my i know what the best and good for i buy stock market Thank you
omar lawrence
omar lawrence Oct 20, 2021 8:59PM ET
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okay
Catharine Varady
Catharine Varady Oct 20, 2021 8:14PM ET
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using the parable from the bible, u.s. positions itself as the master while others using usd as the servants. when u.s. returns, u.s. will ask servants to payback, then usd will up
 
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