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18th May 2015
(When) will interest rates rise?

Despite some talk of raising rates sooner than anticipated, the markets know by now to ignore this type of conjecture. In each of the instances below the Fed said one thing only to act in another manner when push came to shove:


  • As QE1 came to a close, they claimed there would be no more QE
  • As QE2 came to a close, they claimed there would be no more QE
  • They claimed Operation Twist would end on September 30, 2012 only to extend it
  • Calendar guidance was offered and abandoned
  • Forward guidance was offered and largely abandoned
  • Economic thresholds (6.5% unemployment and 2% inflation) were offered as guideposts and largely abandoned


In each of these instances the market correctly ignored the Fed and priced in a more accommodating policy. Why should this episode of “The Boy Who Cried Wolf” be any different?

James Bianco

Bianco Research L.L.C.

September 2014



It’s the way of radical monetary gimmicks that one begets another....

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11th May 2015
Has the dollar reached a turning point?

Regular readers will be all too well aware that we have been questioning the market’s expectations on the timing of the Fed’s first interest rate hike in recent months. This is looking increasingly justified with futures markets now pricing in a 0% probability of a rate rise when the Fed meets in June and less than a 50% chance that rates will be 0.5% (or higher) following December’s meeting.


So far, this shift in policy expectations has only had a marginal (although not immaterial) impact on the greenback – the dollar index is down 3.7% over the past month, although part of this can be attributed to optimism surrounding the euro (with inflation showing signs of picking up) and sterling (following last week’s election). However, what is increasingly notable, is the number of market commentators who have scaled back expectations for a stronger dollar or even switched to a bearish view....

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5th May 2015
The UK Election and Sterling – Do the markets care who wins?

On Thursday, the British electorate go to the polls in one of the most uncertain elections in recent history (by the way, for those readers eligible to vote in the UK but still undecided, there is an app for that…), with current opinion polls showing the Conservatives and the Labour party in a dead heat, with about a third of the national vote each, and the remaining third divided amongst an assortment of ‘alternative’ parties.  


The currency markets are reflecting this uncertainty by bidding up the cost of insurance against sterling volatility; one week GBPUSD implied volatility is now close to 20%, meaning the market anticipates that the possibility of sharp movements in GBPUSD (up or down) is much greater than usual over the next week (implied volatility has also risen over longer time horizons, but not nearly as much).


The manifestos of both major parties contain risks to sterling.  For...

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