QE3 arrives

Posted by on Sep 14, 2012 in Events, Market News, News

QE3 arrives

This has been quite a momentous week on the currency markets. On Wednesday, the German constitutional court okay-ed the German governments contribution to the European Stability Mechanism (ESM), removing one potential obstacle in the Forex markets. It means the Eurozone countries have a backstop, for now.

The Euro is trading close to 1.3100 against the US Dollar as I write this piece. A couple of months ago, the Euro was trading at 1.2250 and heading south. I would not have predicted a rise of this nature. So what has caused it? It is certainly not the strong Eurozone economy, that’s for sure.

Well, from the ECB, Mario Draghi has shown some leadership on the Euro crisis and is attempting to solve the issues single handed. He will need some political support in this process. There are many obstacles ahead and the track record over the past few months does not inspire confidence.

The real support for the Euro came from the Fed yesterday evening, with the announcement of further quantitative easing, or QE3. This means the Fed is going to start the printing presses again, pumping $40 billion into the economy every month until is gets going and unemployment is down to a reasonable level.

So far, much of the money being printed does not seem to flow into economic activity. With consumers still concerned about debt levels, free spending on credit cards and economic growth as we’ve known it remain a distant prospect to me.