A quiet start to the last trading day of the week that has to be a welcome respite for traders after yesterday's frenzied activity. The volatility that the US Dollar experienced in the US session is in some ways symptomatic of the uncertainty that faces the US growth story. The market has all but discounted the "fact" that the FED will begin tapering their asset purchases with the "only" question being the timing of said event. As the "expected" date for this process approaches, a couple of factors have given the market "cause for pause".
US economic data, while good, has not been outstanding and if one were to factor in the detrimental effect that a sharp rise in yields would have on growth, you could very well understand the markets' reservations. This is the quandary that the FED faces:
- If they remove or taper the stimulus measures that have helped the US economy slowly regain its footing then yields will rise.
- Rising yields normally act as a constraint against growth which could send the US economy back to a state where stimulus might be needed again.