Forex Flash: Qe3 not wound back yet amidst warnings of deflation – UBS

FXstreet.com (Barcelona) - Bullard is considered one of the less dovish FOMC voting members, so his warning that more asset purchases may be needed to prevent deflation should be taken seriously. Sequential core inflation is falling again, as seems to be the case ever year as the US experiences a 'summer price lull'.

The response was announcing more stimuli in Q3 of every year from 2010 to 2012. “If core PCE continues to decline more than expected, the Fed may unequivocally rule out any winding back of stimulus this year.” notes Research Analyst Gareth Berry at UBS. Irrespective of where growth is, this presents a clear threat to our positive dollar call and the USD/JPY in particular will be harmed, as the prospect of minimal yield pick-up in the US will undermine interest from Lifers.

“As such the FOMC's price commentary in upcoming meetings should have equal, if not more emphasis than discussion over their labor thresholds.” Berry warns.