USD – Double Dip Implications

A quiet day of economic releases greeted traders returning from the weekend, but the USD did manage to pick up some of its lost ground versus the GBP and EUR. Wall Street was slightly positive by day’s end, but it was evident that any investors who were sitting on the fence previously remained firmly in place yesterday. Today the Federal Reserve will publish its FOMC Statement and many questions abound. The San Francisco Fed last night warned that the U.S. economy faces a risk of falling into another recession. After last Friday’s bad jobless report grumblings could be heard about the possibility more stimulus measures being undertaken. But at this point, the problem that investors are pointing to are interest rates that are already at near zero levels. Quantitative easing could be implemented again via the purchasing of additional bonds by the government, but how would this help after so much money has already been pushed into the American economy with little effect except the creation of stability.

The fear of a double dip recession is no longer the domain of only naysayers. Many concerns about consumer spending, housing, and job creation abound and the answers remain in short supply. Tomorrow Trade Balance numbers will be brought forth, on Thursday weekly Unemployment Claims are on the schedule, and Friday will conclude with Retail Sales numbers. The USD has lost ground the past couple of months within a complex mix of rather lackluster data from the States and the fear from the European Sovereign Debt crisis easing. The million dollar question facing traders is what will happen if the U.S. economy truly begins to slip and how it’s safe haven status will play out. If a recession occurs in the States there will be a significant chance of a worldwide domino effect.

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