Citigroup Seeing FX Signals of Early End to Stimulus

“The foreign-exchange market is signaling to Citigroup Inc. (C) that it isn’t yet convinced theFederal Reserve will fulfill its pledge to keep pumping record amounts of cash into the U.S. economy through 2015.

The U.S. Dollar Index has gained 2.5 percent since the central bank said Sept. 13 it would keep interest rates at record lows through mid-2015 and print $40 billion a month to buy bonds, a policy that debases the currency. Higher-yielding currencies from the Czech koruna to Poland’s zloty that benefited from such actions in the past are weakening.

While the Fed said it will keep the stimulus going even after data show the economy is improving, the foreign exchange market indicates that gains in U.S. employment, housing andconsumer confidence may prompt changes in policy sooner. The dollar will rally next year versus the euro and yen, based on the median estimate of more than 50 strategists from Barclays Plc to Nomura Holdings Inc. surveyed by Bloomberg.

“Does the market really believe that the 2015 Fed is going to be constrained by the 2012 Fed?” Steven Englander, Citigroup’s New York-based global head of G-10 strategy, said in a telephone interview from New York. “The answer is ‘no.’” ”

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