Week In FX Europe – Market Cannot Side-Step All Fed Rhetoric

Investors have had to side step month-end, quarter-end and mid-year portfolio adjustments. However, they could not escape some compelling Fed rhetoric on the final Friday of June. Since helicopter Ben’s failed attempt at transparency at last weeks post-FOMC press conference there have been no fewer than five Fed speakers attempting to clarify his points.

The plethora of Fed speakers have gone out of their way to point out that the market has got it wrong with the rate outlook. Fed’s Fischer, Dudley, Powell and Lockhart have used adjectives like “feral hog’s” and “cold turkey” to describe some of the out-of-sync rate movements that investors have endured over the past nine-day’s.

Have some members already decided on September? Fed governor and voting member Stein happened to reignite the QE tapering market anguish on Friday when he argued that the central bank should be “clear that in making a decision, in say September, it will give consideration” to the economic progress made since the start of easing. Comments like this suggest a lowering of the bar for a possible QE tapering in September. US treasuries immediately backed up on this comment.

Investors should be expecting more Fed speakers to try and stay to their script and calm market fears over the rate path. It is difficult for investors to wholly understand the Fed’s message in its entirety. Given the basis upon which the central bank has expanded its balance sheet, the current reasons to taper/end QE so soon is certainly “a large pill to swallow.” Next week’s NFP release will play a pivotal role – a strong US payrolls number could easily send markets back into panicked position reduction, in other words another tailspin.

• Carney to Start at BoE on Canada Day
• Merkel Condemns Irish Bankers for Damaging Democracy
• Turkish Finance Minister Calls Protests Hiccup for the Economy
• Higher than expected German Retail Sales – EUR/USD Flat
• French National Auditor Warns About Economic Reforms
• Ireland Back in a Recession Despite Austerity
• Revision Shows UK Avoided Double Dip Recession in 2011
• French Consumer Confidence Touches All Time Low
• European Union Agrees to Investors Sharing Cost of Bailouts
• European Finance Ministers Seek To Shield Tax Payers from Bank Collapses
• Greece Vows To Implement Austerity Reforms After Political Crisis
• ECB Mario Draghi Defends QE Program
• German Consumer Confidence Near Six Year High
• In Last Address as BoE Mervyn King Says Interest Rate Rise Not Imminent
• German Business Confidence Rises Slightly in June
• German Chancellor Merkel Prepares for Elections

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