The Federal Reserve (Fed) confirms tapering will start in mid-November, putting asset purchases on a path to conclude in mid-June 2022. Economists at HSBC believe the USD will have room to strengthen, due to the Fed’s path towards normalisation and slowing global growth.
“Beginning in mid-November, purchases of US Treasuries will be reduced by USD10 B each month and purchases of mortgage-backed securities (MBS) reduced by USD5 B. Another reduction in purchases will occur in mid-December. If tapering stays on this timeline, net asset purchases would reach zero in the middle of June 2022.”
“We believe that the FOMC is prepared to take a wait-and-see approach with respect to using rate hikes to address inflation risks. Our baseline inflation projections suggest that rate hikes will commence only in 2023.”
“The FOMC may not be moving any more swiftly than expected to the exit from emergency levels of policy accommodation, but it is still exiting. This should be enough to support the USD against a number of currencies where central bank guidance is more overtly dovish, or where yields are lower than those in the US.”
“The continued moderation in global activity is likely to support the USD given its counter-cyclical personality. The November FOMC meeting was not a game-changer, but it also should allow the USD to continue accumulating wins in the year ahead.”
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