Happy Landings as quantitative easing slows

Posted by on Jul 4, 2013 in Commentary, Featured, Market News

Happy Landings as quantitative easing slows

A couple of weeks ago, helicopter Ben (a.k.a. Ben Bernanke) announced the Federal Reserve was going to slow down the rate at which it was printing money. The printing presses, known as quantitative easing were always going to stop at some point. The fact that so much notice was given shouldn’t have come as a surprise. But it jolted the market.

In my view, we should look at the background to the announcement, which is a return to economic growth and a fall in unemployment. Over the past few months, the stimulus of billions of dollars being printed aligned with low interest rates has ignited the US economy. There are still elements of risk in the world (we only have to look across the channel to the Eurozone to see risk). A slow down in the stimulus, rather than cessation should lead to continued economic growth in the US and help create a stable world economy.

What does this mean to the trading community? Any economy that is showing good growth, falling unemployment, low inflation should have a strengthening currency. Whilst much of the growth has been in place for some months, the printing of dollars has held back the value of the dollar. It should follow that the dollar will appreciate against other currencies over the next few months.

But watch out for wobbles on the way. Non-farm payroll figures tomorrow will be eagerly anticipated, as they will be the first figures released since the Fed announcement. Expect market volatility. Look for signs of continued growth, as this is likely to lead to further appreciation of the dollar, specially as weakness in the Eurozone continues.