The US Federal Reserve, FED, seems set for a third round of monetary stimulus. It is further expected that FED will continue its low interest rates policies at least to 2015. If FED’s statement today clearly signals stimulus, the dollar will come under new pressure. The Euro which received a boost from the German constitutional court and by the outcome of the Dutch elections yesterday, will in short term be further strengthened. Euro/USD continues up in the opening hours in Asia and trades at 1.2926. Asian shares steady amid caution before FED’s decision.
US and European stock exchanges reacted reluctantly to the German Constitutional Court decision which opens the door for buying of sovereign bonds from exposed Euro countries. The markets had already priced in a positive constitutional outcome and consolidated earlier gains. Neither a new introduction of Apple created the great enthusiasm on Wall street nor worldwide. There is also a sober attitude towards possible FED measures. There are also strong doubts about the efficacy of further quantitative easing.
FED Chairman Ben Bernanke has on the other hand clearly stated that the central bank will not sit idly by while unemployment remains far above levels consistent with a healthy economic recovery. A strong “growth” statement will therefore be taken positively by markets, but not cause the big enthusiasm. Further easing will have a negative impact on the dollar; strengthen commodities and the risk appetite. It is, however, a clear understanding that there is limited magic in FED’s tool box. Further market growth from here depends primarily on economic fundamentals.
The careful, defensive attitude which we see during this week is reflected in the new strength of the Japanese Yen which trades at 77,721 against the USD. Yen is seen as a safe haven when there is volatility and uncertainty regarding the market direction. Oil prices got a new boost following the tragic killing of the US ambassador in the oil rich Libya. Brent jumped above 116 a barrel, and New York crude is steady above 97. Gold is consolidating around 1730 – 1735. Silver experienced big volatility. After reaching USD 34 it fall 3 %. It is now trading at 33,25. The positive upward trend in gold and silver is expected to continue with a positive FED decision.
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