Where the doves hide

With both the Fed and the ECB ending the year with tapering in mind, it might seem that the monetary policy outlook is fairly balanced. But the reality is the US backdrop is more troublesome with a tight labour market, hot economy and surging headline inflation. That mix will keep the Fed tied to a more hawkish policy stance. The ECB in contrast looks wedded to caution. The scars of past policy mistakes are one input but the economy is a little slacker and inflationary pressure looks more manageable. We remain long the US dollar versus the euro.

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