Will QE2 face a premature death? Don’t bet on it

Following Fed voting member Plosser’s perceived hawkish speech on Friday where he said what to do when the time arrives (whenever that will be) to proceed with an exit strategy, non voting member Bullard on Saturday said “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short,” as he thinks “the economy is looking pretty good.” It’s highly unlikely the Fed does stop before June 30th but either way, there is only 3 months left in the program. Treasuries are lower and the DXY higher in response but the $ continues lower vs the commodity currencies as the AUD is at a new record high and CAD is near the highest since ’07. We will get a rate hike from the ECB next week, likely 25 bps and one of the few voices in the UK that has voted to raise interest rates, BoE member Sentance, reiterated his desire for rates to go higher “sooner rather than later” as he discussed again the risk of having rates too low for too long. As Portugal’s government continues to twist in the wind, yields are making new highs as an expected bailout is doing nothing to ebb the rise in funding costs.

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