When the Fed announces a third round of quantitative easing, expect unintended cross-currency consequences. Last time, the dollar fell against a host of currencies, but now central banks in many of those same countries will actively intervene to prevent their currencies from appreciating against the greenback. However, other countries seem unprepared to intervene such as Australia, New Zealand and South Korea. As a result, bet on their currencies rising.
Tag Archives: Fed
The Good, The Bad, The Ugly
The Good: Fed lifted its GDP forecast for ’11 to a 3.4% to 3.9% band from 3.0%-3.4% based on minutes from Jan meeting. The Bad: Ongoing frustration with slow progress in the labor market compelled the Fed to say that accommodative monetary policy is crucial. The Ugly: mortgage apps for home purchases fell 5.9% the week of 2/11 and down now in 6 of the past 7 weeks, and so far this year have sunk at a 68% annual rate
Fed unleashes…
The Fed sees the economy through the lens of a wealth effect stimulating consumer spending. And gains in the stock market have helped achieve that but only 20% of Americans own equity directly. But we all eat and most of us drive and what the Fed has also unleashed via QE2 is a weak dollar and substantial speculation in commodity markets when global supplies for raw materials are generally tight.