To taper or not to taper…
The fact that we have used that title before is significant. Although better US economic data and the Congressional budget deal last week increased the likelihood of tapering, the FOMC may well require more evidence that the rate of growth is accelerating before slowing the pace of purchases.
A no-taper decision today will lead to muted reactions in FX markets, given the finite nature of the postponement. However, the reprieve may provide temporary support to high yielding or vulnerable currencies and weaken USD.
A decision to begin tapering will surely see USD strengthen rapidly – however given that meeting is taking place at 7pm this evening (UK time) the impact will be split until full london trading begins again in the morning.
This morning we also have the December BoE MPC minutes to show that the committee voted unanimously to keep policy on hold.