Archived IMT (2010.10.12)

FOMC MINUTES from the Sep meeting will likely highlight the dissent as well as uncertainty among FOMC members regarding i) the need to purchase additional bonds (beyond maintaining the balance sheet intact) and; ii) the visibility towards the November 2-3 meeting. The FX impact of QE2 will primarily be in function of the quantity as well as the extent to which it keeps the door open for further purchases, Thus, an initial announcement of say, $150 bln may disappoint USD-bears who had been anticipating higher amounts, but not if the FOMC announces a monthly purchase program that is subject to revision. Once US QE2 becomes the new normal, selling pressure on the USD could well ease as traders begin anticipating the days of similar moves by the Bank of England (70% chance of occurring before January) and the ECB, the risk of China hitting the brakes too hard could well increase in its role of weighing on equities, commodities and risk currencies.