Qualitative Easing to hit the US?

There is increased market speculation, this morning, that the Federal Reserve will introduce additional measures to stimulate the economy, following comments from William C. Dudley, the President of the Federal Reserve Bank of New York. This has led to the US Dollar trading weak against the majors, in today’s trade. Meanwhile, Mario Monti, the new Prime Minister of Italy, has won the Senate confidence vote, providing much needed relief to the strained market confidence. We expect high volatility and possible breakouts as the market approaches the weekend.

Pound Sterling – UK Markets

The Pound has turned and is trading higher against the US Dollar, on upbeat market sentiment, following yesterday’s unexpected rise in the UK retail sales for October. Additionally, downward pressure on the US Dollar due to market speculation of further easing in the US is also lending support to Sterling. Sterling has taken in its stride the comment from the Bank of England Monetary Policy Committee's external member, Martin Weale, that there is a “very strong case” for another round of quantitative easing in 2012, unless the economic outlook improves. Meanwhile, Barclays Capital has indicated that the Chancellor of Exchequer, George Osborne, would fail to eliminate the structural budget deficit until 2017. We anticipate the Pound to trade higher against the US Dollar today, amidst growing speculation that the Federal Reserve may provide additional stimulus to revive the economy.

US Dollar – US Markets

The US Dollar has declined against its major counterparts, this morning, amid speculation that the Fed will resort to additional measures to lower borrowing costs, in a move to stimulate the economy. New York Fed President, William Dudley, stated that the central bank could do to more to boost the economy, such as providing clearer guidance on how long interest rates would stay low or resume asset purchases. However, yesterday’s data indicated an unexpected decline in the US weekly initial jobless claims and a better-than-expected housing starts data for October, spurring confidence over the nation’s economic strength. On the economic front, leading indicators index is the only major release for today, which is anticipated to rise in October. Investors also keenly eye the existing US home sales report, scheduled for release by the National Association of Realtors on Monday, which is expected to be largely negative.

Euro – European Markets

The Euro has strengthened against the major currencies, this morning, as Italy’s new Prime Minister, Mario Monti, won confidence vote, and promised to steer the country out of the crisis. Market sentiment towards the Euro is buoyed after the World Bank President, Robert Zoellick, commented that countries including China and the US may be willing to support Europe through the International Monetary Fund. Meanwhile, yesterday Spain and France struggled with their sovereign bond auctions, while Fitch Ratings rattled the markets with a warning that Italy is “probably under recession”.

Other Currencies – Highlights

The Australian Dollar is trading lower against the majors, amid growing uncertainty over the growth prospects of the global economy. The Chinese central bank has indicated that prices in the nation have not cooled enough to loosen monetary policy. Moreover, the China Banking Regulatory Commission has warned banks that certain projects backed by local governments may run out of funds, fuelling concerns over growth prospects of Australia’s largest trading partner. The sharp increase in borrowing costs of nations in the Eurozone and weaker base metal prices have further clouded the outlook for the Aussie.