— This is the script of CNBC's news report for China's CCTV on November 21, Thursday.
Welcome to the CNBC Business Daily.
Minutes from the Federal Reserve's October meeting hinted that the central bank could reduce its asset buying at its next few meetings. CNBC's Steve Liesman has more:
[Package on tape by CNBC Reporter Steve Liesman] Minutes of the Fed's October meeting showing committee members generally thought the economy would improve enough in coming months to warrant a reduction in stimulus to the economy.
Specifically, they could reduce the amount of assets, the purchasing program known as Quantitative Easing in the next few meetings, if the Fed's forecast for gradually improving economy comes through.
But the Fed is also deeply divided over its communication strategy, as it fears that stocks and bonds could sell-off sharply when it reduces QE, and it's trying to convince markets that, if it does indeed taper, that does not mean the central bank will raise interest rates any time soon.
Fed Chief Ben Bernanke has struggled with this problem for months, and there doesn't seem to be any easy answers judging from the debate in the minutes.
The Fed policy discussion includes: using a mechanical rule to determine how much to taper; tapering even without complete evidence; if the economy is turned around, limiting the size of the program; lowering the unemployment threshold at which the Fed would reduce rates - that was rejected so far; and even a standing short-term bond purchases that would act as a permanent quantitative easing.
When the Fed does taper, a number of participants support equal size reductions in treasuries and mortgage backed securities.
The Fed also discussed lowering the rate on excess reserves - that's in case the banks put their deposits at the Fed - but so far, decided against it.
We also learnt the Fed had a special emergency meeting on October 16th, the day before the government was supposed to default on instead, and discuss what to do if indeed that default came to pass.
They suggest that could take actions to smooth market disruptions in the event of a U.S. default.
Generally they saw the economy or the economic effects of the government shutdown as temporary and limited. Back to you guys.
This as the ECB resisted pressure from the OECD to consider a quantitative easing program, with German Bundesbank Chief Jens Weidmann saying that printing money was not the way out.
So what impact will all this central bank activity have on the forex market? Here's what CNBC's guests had to say:
[Soundbyte on tape by John Doyle, Director of Markets, Tempus] Bernanke has been very dovish, Yellen last week when she was testifying before the Senate was also very dovish. So I think what we're looking at is USD gaining on potential tapering, not on interest rate speculation. We are looking at near zero percent interest rates well into next year, and Bernanke has even said that if unemployment comes down to 6.5%, don't expect an automatic rate hike at that time. So I think we're looking at a low interest rate for a very long time.
[Soundbyte on tape by Nick Verdi, FX Strategy Asia Pacific ex-Japan, Barclays] The key trade for markets is on the back of yields, so I think staying away from high yielders is a good bet for now. So being short the AUD remains a favourite trade of ours. I think another differentiating factor is monetary policy. I think this year, investors have been rewarded if they've been able to read central banks right. We think that the ECB is still very much open to loosening here, and that augers for EUR/USD being lower as well.
[Soundbyte on tape by Nizam Idris, Head, FI&C Strategy, Macquarie] When everyone is at zero, then it's a question of how much you print. So you'll get BOJ printing the most, ECB threatening to print but I think the bar is pretty high for ECB. That to me leaves the yen as the weakest currency.
[Soundbyte on tape by Nizam Idris, Head, FI&C Strategy, Macquarie] Over the next few weeks in my view, the dollar should head lower. Simply because there's no chance whatsover for the Fed to begin tapering any time soon. For me, I think it's March or later, and that means that the market should make hay while the sun still shines, and park the dollar in Asia where there's still yields.
Li Sixuan from CNBC's Singapore headquarters.