Fed’s Consideration of QE3 Hurts USD

Release of the recent Fed Minutes, which showed active consideration of QE3 – a perceived stimulus for the globally lethargic economies – is reflected in such consideration spreading beyond US shores. Chicago Federal Reserve Bank President Charles Evans yesterday, in China, urged China to join the US and increase the money supply to stimulate the global economy.

A frequent complaint to this type of monetary stimulant is that the central banks have no idea where the money will be spent. Some claim it causes commodity inflation, and from experience I know there is nothing like a good bull market in commodities to enrich Chicago traders. Yesterday, gold raced ahead $35 per ounce following the easing talk. Is this why Chicago’s Charles Evans is such a bellicose supporter of QE3?  It helps the home town economy?

Many of the US reports since the last FOMC meeting have been somewhat better than anticipated. This prompts some analysts to caution that a decision concerning a new round of stimulus may not commence until October, if at all. However, the US Initial Jobless Claims Number at 372K was worse than expected yesterday, serving to elevate the chant for more stimulus.

Other traders are hoping the 2012 Jackson Hole Symposium of Central Bankers, which begins next Friday the 31st, will be a repeat of the 2010 Meeting when Bernanke announced QE2. The specs are short the euro versus the USD, and, ahead of the Jackson Hole meeting, we are likely to see more nervous shorts bail.

Personally I think the chances are slim Bernanke will immediately embark on a definite change of policy prior to the election, fearing flak from both political parties. For example, where would the price of oil, now almost 98/Barrel for WTI crude, go if we began QE3 in September? Combine this with a US Gulf hurricane! Currently gasoline is creeping back to 4.00 a gallon, a price that will lose Democrat votes, and quite possibly the election for Obama.

On the Republican side, there is ample opposition to the Keynesian, big-deficit spenders, combined with the loose money policies of the Fed. Some want to audit the Fed, and others are just suspicious of their activities. Chances are QE3 would result in a move to retire Bernanke, if the Republicans are to take over.st – Euro Rallies on Outbreak of Optimism – that the euro could gain on the USD. Such has been the case with the Fed’s help. Merkel and Hollande are trying to make some compromises for the Greek Prime Minister Samaras but German Finance Minister, playing the part of the grumpy old man, is objecting.

Ahead of the Jackson Hole meeting, however, it looks to us the USD can weaken versus the euro, but going forward into September we will be looking for a higher level to be a seller of the euro.

EURUSD Daily 23 August 2012, Cash Back Forex Brokers Online

Written by CashBackForex.com