Photo: Federal Reserve
In his list of 6 reasons Bernanke caused the dollar to tank, Citi’s Steve Englander plucks out one really important statement from Bernanke:The emphasis on the measure of Fed ease being the stock of assets owned rather than the flow — by implication the end of QE2 would be the end of additional easing but not the beginning of tightening — the implication for the FX market is that a backing up of asset prices at the end of QE2 would be unwelcome.
We’ve, perhaps, been lazy in saying that the end of QE2 — and a levelling off of the Fed balance sheet — was a form of tightening. But that only makes sense if you had assumed that the easing would go on forever, which the market hasn’t. The $600 billion number has been known since the first day QE2 was announced.
So nothing really changes once the bond buying program is over either way, and there’s no particular reason that it’s end markets some kind of bottom for the dollar.