Weekly Commentary - How would currency and gold go under tapering
The economic recovery in US is advanced and US growth would rise above trend in 2014. Consequently, is likely to reduce its bond purchases in the foreseeable future. Nevertheless, inflation pressure seems to remain low, which contains upward pressure on commodity price. The combination of recovery growth, low inflation and tapering discussion would likely have direct impact on currencies and gold.
Currencies
Because of the tapering discussion in Federal Open Market Committee (FOMC) meeting, interest rates have recently moved in the USD favors. In addition, diverging monetary policy between US and Japan is also a factor to support dollar. As a result, we regard the USD is likely to continue its recent move relating Japanese Yen.
Gold
With inflation rate remain low, and given tapering and moderately higher bond yields in the US and a stronger USD, gold price is likely to go down or at least remain flat.
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