Forex Flash: US employment reports to become decisive for Fed's QE - Commerzbank

FXstreet.com (Barcelona) - The US labor market report today is the main market driver and is likely to be the decisive factor for the Fed's QE strategy: "There are increasingly vociferous demands from within the FOMC suggesting an explicit rule in this connection", wrote analyst Ulrich Leuchtmann, adding that Fed officials have been suggesting the central bank should commit to continuing the MBS purchasing programme until the unemployment rate has eased below 7.25% (currently: 7.8%) and to leave key rates at zero until it has fallen below 6.5%. Boston Fed's Rosengren proposal even includes the abandonment of the inflation target, also signaling general intensions of losing the Fed's "dual mandate".

"Our regular readers will not be surprised to hear that I tend to agree with the view of the remaining hawks on the FOMC (e.g. Jeff Lacker and Charles Plosser): with the tools available to the Fed it can do very little to contribute to a fall in unemployment. This would require mainly labor market policy measures and the Fed should therefore concentrate mainly on the inflation part of its dual mandate", Leuchtmann said, expecting doves to win the "battle" and develop in the opposite direction.