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Forex Strategy Video: Rate, Stimulus Speculation Heating Up...Where's the Volatility?

Forex Strategy Video: Rate, Stimulus Speculation Heating Up...Where's the Volatility?

2013-12-12 01:24:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

• We are seeing one the most severe divergences in monetary policy since the Great Financial Crisis

• As extremes, we have the RBNZ projecting 225 bps of hikes in 2 years and the BoJ readying a QE2

• Relative rate and monetary policy forecasts are being temporarily held back by a risk distraction

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Market speculation surrounding the forecast for rates and stimulus is increasingly rapidly as major players like the Fed, ECB, BoJ and RBNZ take increasingly divergent paths. This morning, the RBNZ placed the kiwi at the severe hawkish end of the policy spectrum when Governor Wheeler remarked he expected 225 bps of rate hikes are expected over the coming two-and-a-half years. At the other extreme, the market expects an upgrade to the BoJ's open-ended stimulus program. And, in between, we have speculation of a Fed Taper, the ECB is considering another LTRO program and the BoE is feeling out the timing of its first hike. This speculation is especially important for the FX markets, but why isn't it generating bigger trends? We discuss this in today's Strategy Video.

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