The market was reluctant to price in the lack of a taper, until now.

Over the course of the fiscal impasse it became clear the Fed wouldn’t taper in October and probably not December. The market shifted to the January FOMC as a date but with the new government shutdown deadline at January 15, even that’s in question. Some prominent market watchers are even talking about June 2014 for the first taper.

None of this is a surprise but the FX market was unable to sell the dollar until now. Before, the headline risks around negotiations were too high — a bad headline meant a spat of risk aversion and US dollar buying.

Now, the market can refocus on fundamentals and interest rate differentials and that’s why we’re seeing such large, anti-US dollar moves today.
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