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15 Jul 2013
Flash: Fed Developments digested – BMO
FXstreet.com (London) - Stephen Gallo, European Head of FX Strategy at BMO financial Group feel markets will now see lower volatility.
He said Fed developments over the last week are a confirmation that the “first round” of QE tapering adjustment in the US yield curve has probably run its course.
“As such, we expect a temporary shift to lower volatility in global sovereign debt markets to be more supportive for USD/JPY and act as a ceiling on JPY strength.” He continued and said US 2-year and 10-year yields, in terms of their relationships with USD/JPY, have driven weekly changes in the pair by roughly the same magnitude historically. “As long as sovereign debt market volatility remains below its recent peak, USD/JPY and US equity prices can therefore “play catch-up” with the move in the US 10-year yield for a time”.
He said Fed developments over the last week are a confirmation that the “first round” of QE tapering adjustment in the US yield curve has probably run its course.
“As such, we expect a temporary shift to lower volatility in global sovereign debt markets to be more supportive for USD/JPY and act as a ceiling on JPY strength.” He continued and said US 2-year and 10-year yields, in terms of their relationships with USD/JPY, have driven weekly changes in the pair by roughly the same magnitude historically. “As long as sovereign debt market volatility remains below its recent peak, USD/JPY and US equity prices can therefore “play catch-up” with the move in the US 10-year yield for a time”.