USD off despite Fisher plea for tapering to start “as soon as possible”

• US economy “has enough firepower” according to Dallas Fed Chair
• Carney speech emphasises monetary support, GBP rallies
• Euro strong before Draghi speech, French industrial production disappoints

Trade was quiet yesterday with market participants still thinking about Friday’s payrolls announcement and its likely effect on US monetary policy. There’s one thing that numbers which imply a level of economic progression will always do, and that’s increasing the chances of a tightening, or in this case, a normalisation of monetary policy sooner rather than later. A Bloomberg poll of economists and strategists put the chances of a reduction in stimulus targeted at the US economy at either the December or January meeting at 75%. Despite this, USD has been kept on the back foot once again despite some bullish chatter from one member of the Fed.

Dallas Fed President Richard Fisher said yesterday that the Federal Reserve should begin the process of tapering at the next meeting. Fisher told reporters that they “should get started as soon as possible” and that the economy has “enough firepower already if it’s properly used”.

Sterling has moved higher across the board despite a dovish speech from Mark Carney in New York yesterday morning. Carney told those assembled that he would favour using other tools other than interest rates to help the UK’s recovery and in order to prevent a bubble and a burst in the housing market.

Once again, the speech focused on the speed of the improvement in unemployment in the UK and that hitting the 7% threshold is not an automatic rate rising event. Despite his efforts to try and talk down the economy, Carney has the opposite effect on GBP than his predecessor; Mervyn King used to make GBP cry when he spoke, Carney is treated like a cheerleader.

GBP paid little attention to news from the Office of Budgetary Responsibility Chair Robert Chote, who highlighted yesterday that the think tank is particularly bearish on UK living standards. We have been particularly vocal on real wage declines and the effect on the UK consumer in the past few months – the OBR now believe that we will not see “the 2 per cent a year real growth in wages and salaries that people would be used to from past historical experience for a couple of years still.”

Euro pushed to a 5yr high against the Japanese yen yesterday, dragging all EUR crosses higher as a result too. Markets are focused on a speech from Mario Draghi today following a fairly hawkish speech at the ECB meet last week. He speaks at noon.

The data calendar picks up a bit today with industrial production numbers from Italy and the UK at 09.00 and 09.30 respectively. Both are expected to rise on the month but with Italy’s down 2.2% from a year ago while the UK’s should have expanded by 3.2%.

Have a great day.