Bullard Suggests Fed May Taper in October, Dollar Rises

DailyFX

  • Fed’s Bullard suggests a possible taper in October
  • Dovish inflation comments ignored by markets
  • US Dollar rallies following recent losses

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The US Dollar rose 35 pips against the Euro, as voting Federal Open Market Committee member Bullard said a small taper is possible in October.

The comments surprised Forex traders after the Fed went against expectations in its monthly meeting on Wednesday and didn’t taper its 85 billion Dollars of monthly quantitative easing. Many were looking to December as the next opportunity to taper, as that was scheduled to be the next meeting accompanied by a press conference, but Bullard said a press conference may also follow October’s meeting.

Despite the significant declines in US Dollar following the Wednesday decision, Bullard said today that 10 billion Dollars of taper versus no taper is not a big thing and mentioned that no taper was a borderline call. He also added that 7% unemployment is a soft guidepost for quantitative easing, and the falling participation rate is mostly structural.

However, Bullard also released some dovish sounding comments, telling Bloomberg that he has been a little concerned that the Fed is too focused on jobs and the central bank must also hit a 2% inflation target. The inflation comments were not given as much market focus as the taper talk.

The Fed has pegged monetary policy to the unemployment rate, which was most recently reported as falling to 7.3% in August from 7.4% in July. However, labor participation was reported at a 35-year low in August, making the unemployment numbers tougher to interpret as positive.

The taper talk sent EUR/USD lower and just short of crossing under 1.3500 in Forex trading. A broken resistance level around 1.3400 may now provide support, and a 7-month high set yesterday at 1.3568 may see resistance.

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EURUSD Daily: September 20, 2013

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Bullard_Suggests_Fed_May_Taper_in_October_Dollar_Rises_body_Picture_1.png, Bullard Suggests Fed May Taper in October, Dollar Rises

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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