Over the past few months and especially during the last few weeks financial markets was obsessed with rumors FED quantitative easing program extension ("QE2). With the prospect of another $ 1 trillion in newly minted money, hitting the market investors allegedly placed in stocks, commodities and other assets associated with higher risk and simultaneously sold dollars in favor of high-yielding alternatives.
On Wednesday the rumor became a reality as THE FED announced that it will expand its balance sheet for the $ 600 billion through purchases of long-term securities Treasury over the next six months, although of course anticipated announcement (and accompanying the federal funds rate at 0%), the markets were slightly taken aback by its scope.
Due to conflicting testimony of members of the Board of Directors of THE FED investors reduced their expectations QE2 in may for $ 300-500 billion.Of course, a handful of bulls forecast as $ 1 trillion in new 1.5 money will be printed. Most analysts, however, the New York Fed Chief William Dudley words at face value when he warned, "I would put very little weight to the fact that prices on the market."He was also rumored that the Ministry of Finance of the United States works behind the scenes to limit the size of the QE2. Thus when the news broke, traders instantly sent down the dollar against the euro, back below $ 40.
On the one hand to markets (currency) can take a step back and focus rather on other issues. For example, recently there has been an increase in yields on euro debt due to concerns about the possibility of default, but this is not reflected in the currency markets. In the frenzy around the QE2 Forex is also completely ignore the comparative growth basis, that unless prices in other currencies, it is in favour of the rally in the dollar.
On the other hand I have the feeling that investors would continue to dwell on the QE2.Although consensus among analysts is that it will have little impact on the economy, they must wait for a confirmation/rejection of this faith in the next 6-12 months in addition all the speculation so far above the size of the QE2 was just – speculation.Moving forward, speculators should also take reality into account, depending on how invested $ 600 billion and its implications for inflation United States.If a significant portion of just pumped and emerging market stocks and markets will have the right and the dollar is likely to fall further if, instead, a large part of the post and put inside the country and eventually shipping consumption, some speculators will be forced to cover their bets, and could rally.
Unfortunately, while the QE2 largely seen as a win-win for United States reserves (either it stimulates the economy and stocks rally, or it fails to stimulate the economy but some funds are used to incite protest stock market anyway), the same cannot be said of the USD in case of successful QE2 then hawks began moaning about inflation and use it as an excuse to sell dollar. in the case of QE2, well, then United States economy could become bogged down in endless decline and bears will sell the dollar in favor of emerging market currencies.
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