Kevin Warsh Faces Early Fed Test as Inflation Risks Challenge Rate-Cut Expectations 
Uruguay Central Bank Holds Interest Rate at 5.75% Amid Inflation and Oil Price Concerns 
ECB Warns Euro Zone Inflation Will Keep Rising Despite Strait of Hormuz Reopening 
Indian Government Bonds Seen Opening Steady Ahead of RBI Policy Decision 
Fed’s Anna Paulson Signals Rates Could Stay Higher Longer Amid Inflation Risks 
Croatia Weighs Ante Zigman for Central Bank Governor Role in Key ECB Transition 
ECB Signals Possible Rate Hike as Middle East Tensions Push Euro Zone Inflation Higher 
South Korea Central Bank Holds Interest Rates Steady Amid Inflation Concerns 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
Indonesia Passes New Central Bank Law, Raising Investor Concerns Over Policy Independence 
We have been arguing that normalization of monetary policies will be driving markets for years to come. We expect the Fed to lead the way. Other G10 central banks are likely to continue moving to the opposite direction for a while, and then start tightening after the Fed's tightening cycle has advanced.
Even if the Fed delays hiking rates, it will be the first central bank to do so, in our view. We believe that the ECB, at the other extreme, will have to ease policies further.
We expect the ECB to miss its inflation target in the months ahead and start talking about QE2, in the form of extending QE after September next year. The timing of the Fed rate hike and the ECB seriously considering QE2 will determine the EUR/USD path, but the final outcome is a weaker EUR/USD, in our view.
We like selling the EUR/USD rallies when we get them, as the path will continue being volatile. We also note that the Eurozone's unemployment rate is the highest in G10 compared with pre-crisis levels, and that the Eurozone also has the largest output gap. This suggests that EUR/USD could weaken more and remain weak in the medium term.
