"It's going to be harder to extract the signal from the data, and the Fed's policies are tied to the data"
- Laura Rosner, a US economist at BNP Paribas SA
After a lot of drama last week, and a lack of economic news from the United States, the Federal Reserve is back to the focus. Even though the budget deal seems like a short-term solution, the market has assumed it settles all U.S. problems, with the S&P 500 soaring 2.4% on the week. In addition to that, bonds had a great week, as ten-year U.S. Treasury fell to 2.59% after almost touching 3% a couple of weeks earlier. This week, however, is expected to provide plenty of data and comments from the Fed governor for economists to parse.
Amid latest economic and political events in the world's largest economy the Federal Reserve is not expected to announce tapering of its stimulus programme during the last three policy meetings. In contrast, the Fed is likely to delay the first reduction of its QE until March 2014 after the government shutdown that weighed on fourth-quarter growth and interrupted the flow of fundamental data. The latest poll conducted by Bloomberg showed policymakers will pare the monthly pace of bond purchases to $70 billion during its meeting on March 18 and 19, down from $85 billion. Furthermore, analysts believe QE will be reduced by $25 billion in July, and completely withdrawn at by October. On the other hand, David Gaud from Edmond de Rothschild Group does not exclude a possibility of QE expansion. This means weaker U.S. Dollar, and in case EUR/USD penetrates 1.37, which is likely to be the last line in the sand drawn by sellers, the pair may rally to 1.40.
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