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DOLLAR: Re Fed tapering, Marshall Gittler of IronFX says "a cut of $5bn in each
(Tsy, MBS) would be within the range of market estimates and would not have much
of an effect on the market, indeed it could give rise to a small relief rally
(yields down, dollar down) that it wasn't higher," while "$15bn ($10bn
Treasuries, $5bn MBS) might be seen as at the top of the expected range and
could send US interest rates and the dollar up modestly, if anything." In
contrast, a $20bn reduction in asset purchases "would probably be seen as
aggressive and would be likely to push US interest rates and the dollar up
sharply." No change at all would likely result in a "relief rally." Market
reaction will hinge on the statement that accompanies the announcement and by
Fed Chair Bernanke's press conference comments. Also, the market will eye the
Fed's new economic projections regarding interest rates, inflation, growth and
unemployment. "The last projections, made in June, were for the unemployment
rate to be 6.5% to 6.8% next year, falling below the 7% barrier that Chairman
Bernanke set for eliminating the bond purchases but not falling below the 6.5%
trigger for raising rates until 2015," Gittler says.