Forex Flash: Will markets soon follow fundamentals again? – UBS

FXstreet.com (Barcelona) - Since the beginning of the year, especially after the minutes of the December FOMC minutes were released, the market has been looking into the prospect of finally following data, in the hope that the Fed would adjust its policy path in kind. After all, the numerical targets were launched with this very objective. As a result, the dollar moved to wards a neutral relationship with changes in break evens, i.e. not responding adversely to any rises at the very least.

According to Research Analysts Gareth Berry and Geoffrey Yu at UBS, “Although the Fed felt that expectations had perhaps moved a bit too quickly and started to shift back a little - leading to a correlation reversal, data has 'refused to cooperate' by continuing to register strong prints. The onus is now on the Fed to perhaps begin adjusting to economic reality.”