Why the Fed Could Move the Euro
Inaction in Washington could hurt overseas, this strategist says.
That's the sound of investor expectations shrinking after Fed Chairman Ben Bernanke declined to provide the monetary stimulus they wanted. True, Bernanke sounded glummer, and yes, tea-leaf readers may find more in his comments than initially meets the eye. But the bottom line is that investors had been hoping for a clear stimulus move, and it didn't materialize.
Absent the prospect of an immediate U.S. interest rate cut, the dollar strengthened in afternoon trading. But Steven Englander, global head of G10 FX strategy at Citigroup , thinks the euro may not be so lucky.
Investors, he says, may "be pulling back a bit from ECB expectations on the view that coordinated easing is out of the picture (keeping in mind that such coordinated easing is far from common). The misread of the Fed may also worry investors that they have misread Draghi," Englander wrote in a note to clients.
All will be revealed Thursday, of course, when European Central Bank (explain this) President Mario Draghimakes the bank's stimulus intentions known. For now, Englander says, "we still see the EUR as having considerable upside if there is a concrete indication of immediate or forthcoming SMP buying, and considerable downside if the ECB Statement is as disappointing as the Fed Statement, because FX investors are more invested in the ECB policy move than in the Fed’s right now."
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