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1 Nov 2013
GBP/USD slides, but early tapering calls may be premature
FXstreet.com (London) - Sterling has steadily declined against the dollar through the day on robust US data, pushing some to call for an earlier that projected tapering of the US Federal Reserve’s USD85bn-a-month asset purchase programme.
The Institute for Supply Management’s manufacturing index climbed to 56.4, up from 56.2 a month earlier and the highest print since April 2011.
In the UK, the Markit purchasing managers survey index fell from a revised 56.3 in September to 56.0.
GBP/USD has declined 0.71 percent to USD1.5925 today. However, predictions of an early relative tightening of policy may be somewhat premature.
The Fed had originally given some hints that it was considering a September taper, with dollar rallying accordingly. This was then ruled out, citing the fragility of the US economic recovery and the sluggishness of the labour market. The effects of the first US government shutdown in 17 years then pushed expectations firmly into next year. The temporary debt ceiling extension agreed last month expires on 7 February and current Fed chairman Ben Bernanke, barring political hiccups, will hand over the reins to fellow dove Janet Yellen on 31 January. With these potential bumps in the road, it makes it difficult to make the case for early tapering.
Additionally, while today may have seen some signs of an up-turn in manufacturing data, the US labour market remains week. At the last print, US non-farm payrolls added just 148,000 jobs.
The Federal Reserve has always sided with caution, and for it to consider a taper of its asset purchases this side of the first quarter 2014, there needs to be substantial, sustained improvement in US macro data. And we are not there yet.
The Institute for Supply Management’s manufacturing index climbed to 56.4, up from 56.2 a month earlier and the highest print since April 2011.
In the UK, the Markit purchasing managers survey index fell from a revised 56.3 in September to 56.0.
GBP/USD has declined 0.71 percent to USD1.5925 today. However, predictions of an early relative tightening of policy may be somewhat premature.
The Fed had originally given some hints that it was considering a September taper, with dollar rallying accordingly. This was then ruled out, citing the fragility of the US economic recovery and the sluggishness of the labour market. The effects of the first US government shutdown in 17 years then pushed expectations firmly into next year. The temporary debt ceiling extension agreed last month expires on 7 February and current Fed chairman Ben Bernanke, barring political hiccups, will hand over the reins to fellow dove Janet Yellen on 31 January. With these potential bumps in the road, it makes it difficult to make the case for early tapering.
Additionally, while today may have seen some signs of an up-turn in manufacturing data, the US labour market remains week. At the last print, US non-farm payrolls added just 148,000 jobs.
The Federal Reserve has always sided with caution, and for it to consider a taper of its asset purchases this side of the first quarter 2014, there needs to be substantial, sustained improvement in US macro data. And we are not there yet.