Posts Tagged "quantitative easing"

Stalemate

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

Stalemate

We reach yet another stalemate as the dominance of the central banks in the currency markets continues after the latest FOMC meeting. The continued manipulation of interest rates through quantitative easing continues. A growing economy being primed by $85bn of money every month, or $1 trillion annually. The FED has on numerous occasions hinted at tapering, but keeps shying away from taking the plunge. It could signal a readiness to reduce the stimulus and avoid the continual back tracking by reducing the stimulus to $80bn a month. In the overall scheme of things, I hardly think a $5bn reduction would make much difference. Politically, it would signal that tapering has begun and move the discussion forwards to how much and when, rather than if. It has to happen. Given the economic growth and the strength in the US stock markets (new all time highs), sooner would appear to be better. As for the government shutdown, the can has been well and truly kicked down the road again until the beginning of next year. We can look forward to more uncertainty and the political horse trading resumes and the biggest economy in the world stumbles on to yet another fudge. Before the latest “settlement”, I said to a group of traders that a solution would be found and the US government would not be allowed to default. That is a given. The only issue in doubt is the political damage. The US seem to be pretty good at inflicting that on...

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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...

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Is inflation next?

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

Is inflation next?

Yesterday evening, Ben Bernanke announced the action the Fed will be taking to provide a boost to the US economy. QE3, or printing dollars at the rate of $40 billion a month will continue until the US economy has better growth and employment. These are commendable goals but we have to ask: is inflation next? However, with more dollars being produced month on month, it means the value of each dollar decreases. As the value of the dollar decreases, the value of other currencies relative to the dollar increase, hence the rise in the value of the Euro over the past week, in spite of the Euro having it’s own issues still. The Euro remains the only other credible world currency to the dollar at this time. More worrying is inflation. The US Dollar is the world currency and all commodities are priced in US Dollars. In theory, assuming a commodity has a constant value, you will need more US Dollars to buy it. The price of a barrel of oil has been rising. Brent crude has risen from a low of $90 back in April to $117 as I write this piece. It has risen $2 since the announcement of QE3. The impact on the price of gold has been even more pronounced. After the US employment figures last week, when non farm payroll numbers were weaker than expected, gold rose by $35 an ounce, or 2% in anticipation of QE3. When QE3 was announced yesterday evening, the price of gold rose again. It is now $75 an ounce more expensive than it was at this time last week, a rise of more than 4%. Suppose these price rises in commodities are representative of things to come. Oil, coal, gas, agricultural products, such as corn, rice, animal feeds, metals like iron ore, platinum and so forth are all going to rise in price, unless there is a corresponding exchange rate fall. As these base commodities rise in price, surely the ripple effect will end up as further inflation for the rest of the world....

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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...

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