It`s going to be a really interesting close to the year, with indecision still the watchword. Focus will of course fall on the US, and not just today. The `taper` issue has been an avoidable cloud over the market since September, and the Fed have an opportunity later this month to disperse it – fingers crossed!

I keep getting asked why, if the US is going to have to withdraw its stimulus soon, has the dollar not been better supported? On the face of it, a good question, and one that has been troubling a lot of dollar bulls. Since the US governmental process embarrassingly came to a conclusion a few months ago, in general terms, the US economy has shaken off any additional negative aspects of the shut-down , and the pace of recovery has out-performed expectations. Payrolls for 2013 are on course to show some of the best hiring numbers for a decade, GDP is beating forecasts and interest rates continue to edge up at the long end and unemployment continues to edge down, but on the other hand………

For FX markets, 2013 has been notable for being the year of beggar thy neighbour governmental policies, some clearly stated as such, others not – but no less real for that. `Devaluation by QE` has been a back door entry to the club, with devaluation being claimed as nothing more than a desirable side-effect to a necessary stimulant to recovery; the UK and the US are confirmed as users, but the habit has certainly been more extensive state-side! Also, in the background has been a serious amount of diversification away from the dollar as the dominant constituent of countries foreign currency reserve portfolios, and an important part of this has been the greater confidence that euroland – one of the greatest recipients of the diversification – is on more stable ground.

Adding to the list, but connected to the above, has been the steady rise in the usage and number of bi-lateral trade agreements which by-pass the previous necessary process of using the dollar. Lastly, it has been noticeable that a significant shift in equity market preference is accelerating, away from the relative maturity of the US and the UK, to some European bourses where there is judged to be more potential short term upside.

There are cyclical processes underway that when coupled with a desire for a competitive edge, make sustained dollar strength difficult. The dollar index has turned round sharply since the middle of this year and will struggle to regain this lost ground quickly. None of this means that there won`t be periods of dollar strength, and certainly in my in-box there are a majority of people who – despite the more macro out flows listed above – expected the dollar to be better bid at this time, all factors taken into account. Hope still remains, but a really strong payroll number today, and an introduction of immediate `taper time` from the Fed in mid December looks to be the main thrust of that hope, and it`s always better to travel in hope than with expectation….isn`t it??