Forex Flash: US growth approaching sustainable amidst easing – UBS

FXstreet.com (Barcelona) - According to Research Analysts Gareth Berry and Geoffrey Yu at UBS, “Where the Fed or the US leads, the rest of the world will follow and if 2009-12 marked the 'new normal', perhaps 2013 may mark the beginning of the return to 'the old normal'. With the (private sector) deleveraging process close to completion (and many will argue it is already complete), finally some form of sustainable growth is beginning to emerge in the US, and the Fed can afford to entertain pulling back on stimulus provision.”

Inflation expectations have started to move along with activity, and markets are starting to reflect this. Inflation expectations are also starting to move in earnest in the UK and Japan on the back of monetary activism, with the hope of kick-starting growth. This represents a different process compared to the US, but the hope this that the end result can remain the same.

Currency markets have started to respond in kind, but the changes in correlations between individual currency performance and their home economies' inflation expectations are markedly different.