For bond markets, perhaps its understandable that they would be sensitive to even slight changes in rhetoric given how high bond prices are. But for broader markets, its surprising that they continue to react as they have done over the past week or so.
Much of the market chatter following the last round of minutes surrounded the concerns about the potential costs vs. benefits of the current rate of asset purchases. But this was unequivocally dealt with by Bernanke, stating that "we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation."
It is noticeable that the recent rise an fall in Treasuries wasn't nearly as large as similar circumstance in early 2011 and 2012 when markets felt the stance of the Fed had shifted, at this is coming from a base of very low yields.
As the chart left shows the USD has mostly appreciated on a trade weighted basis, even though the Fed has proven to easily be the most dovish of major central banks.
Sure, there are changes afoot at the BOJ and the ECB has talked about doing "whatever it takes". Yet neither of these has gone to the lengths the Fed has and probably never will.
To me, this suggests that much of what is going on is not about a "currency war" at all. It seems to be more about perception changes in relative positions of central banks from a current baseline and less about the reality of what central banks are actually doing.
