November 3, 2010
When the global financial crisis broke out, it shocked and horrified the world’s economies but the central banks responded with an unprecedented coordinated reduce of interest rates in an effort to limit the consequences. This week is expected to present something similar but this time to ensure the continuity of the recovery, while in the background lays the control of currency exchange rates and the simultaneous strengthening of exports.
The global economy may experience too many changes at the level of monetary policy with impact on all areas, from trade and interest rates to currency markets and stock exchange markets. The crucial decision will be made from Wednesday to Friday as the Federal Reserve in United Stated already started its meeting while on Friday the Bank of Japan will announce its decisions. Meanwhile, the decisions of the ECB (European Central Bank) and of BOE (Bank of England) are imminent.
In the “33 hours marathon”, from Wednesday’s evening with the announcement of Fed’s decision, until Friday morning that the BOJ unveils its own decision, the world’s largest economies officers are participating in a race in order to enhance economy and to safeguard the global recovery.
The central bank of Australia surprised everyone however, as they decided to increase interest rates, after amid concerns that strong growth will cause accelerated inflation, leading the currency rate against the dollar to 1:1. Also, for the sixth time since the beginning of the year, the central bank of India increased the interest rates in an effort to slowdown and control inflation.
The chairman of the Fed, Ben Bernanke will try to boost the U.S. economy, which could further weaken the forex trading prices of the dollar, forcing more than one central bank to proceed with a series of similar measures to counteract the effects on the foreign exchange market.
Bernanke – as everything shows so far – will go on an unprecedented second round of unconventional monetary easing – according to analysts – by announcing a program of long-term securities purchase worth of 500 billion dollars, resulting in a further weakening of the dollar in order to strengthen the U.S. exports. As a consequence, other currencies will be strengthened against the dollar, threatening the European and Japanese growth.
As all the major central banks will announce their decisions within 33 hours, the Fed’s measures could force the governor of the Bank of Japan to proceed to additional measures for the economy and the Governor of the Bank of England to allow additional support measures. Even the ECB President, Jean-Claude Trichet, who is battling inflation, might finally change course if the Euro will strengthened significantly. At the same time emerging markets are also taking steps to control the rise of their currencies.
“Any easing of U.S. monetary policy creates pressure on the world to react”, says Dominic Wilson, an economist at Goldman Sachs in New York. “The consequent weakening of the dollar tends to tighten financial conditions outside the U.S”.
“There is no magic formula at this time and central bankers have very limited options regarding reducing the interest rates”, states Mr. John Silvia, economist at Wells Fargo Securities LLC. He predicts that the purchases of Treasury bonds and mortgage-secured bonds will reach 500 billion dollars over the next six months.
The meetings this week are the largest “collection of action” of major central banks since the first week of October 2008, when a meeting was held in order to address the global financial crisis. In that case, all – except Japan – participated in an unprecedented coordinated interest rate reduction.
On Wednesday, the Fed will announce its decision. Nearly 18 hours later, the British central bank will publish its own decision. The ECB will follow 45 minutes after, while the Bank of Japan will announce its decisions on Friday morning.
http://www.markets247.com/crucial-33-hours-for-the-global-economy-128
Crucial 33 Hours for the Global Economy
When the global financial crisis broke out, it shocked and horrified the world’s economies but the central banks responded with an unprecedented coordinated reduce of interest rates in an effort to limit the consequences. This week is expected to present something similar but this time to ensure the continuity of the recovery, while in the background lays the control of currency exchange rates and the simultaneous strengthening of exports.
The global economy may experience too many changes at the level of monetary policy with impact on all areas, from trade and interest rates to currency markets and stock exchange markets. The crucial decision will be made from Wednesday to Friday as the Federal Reserve in United Stated already started its meeting while on Friday the Bank of Japan will announce its decisions. Meanwhile, the decisions of the ECB (European Central Bank) and of BOE (Bank of England) are imminent.
In the “33 hours marathon”, from Wednesday’s evening with the announcement of Fed’s decision, until Friday morning that the BOJ unveils its own decision, the world’s largest economies officers are participating in a race in order to enhance economy and to safeguard the global recovery.
The central bank of Australia surprised everyone however, as they decided to increase interest rates, after amid concerns that strong growth will cause accelerated inflation, leading the currency rate against the dollar to 1:1. Also, for the sixth time since the beginning of the year, the central bank of India increased the interest rates in an effort to slowdown and control inflation.
The chairman of the Fed, Ben Bernanke will try to boost the U.S. economy, which could further weaken the forex trading prices of the dollar, forcing more than one central bank to proceed with a series of similar measures to counteract the effects on the foreign exchange market.
Bernanke – as everything shows so far – will go on an unprecedented second round of unconventional monetary easing – according to analysts – by announcing a program of long-term securities purchase worth of 500 billion dollars, resulting in a further weakening of the dollar in order to strengthen the U.S. exports. As a consequence, other currencies will be strengthened against the dollar, threatening the European and Japanese growth.
As all the major central banks will announce their decisions within 33 hours, the Fed’s measures could force the governor of the Bank of Japan to proceed to additional measures for the economy and the Governor of the Bank of England to allow additional support measures. Even the ECB President, Jean-Claude Trichet, who is battling inflation, might finally change course if the Euro will strengthened significantly. At the same time emerging markets are also taking steps to control the rise of their currencies.
“Any easing of U.S. monetary policy creates pressure on the world to react”, says Dominic Wilson, an economist at Goldman Sachs in New York. “The consequent weakening of the dollar tends to tighten financial conditions outside the U.S”.
“There is no magic formula at this time and central bankers have very limited options regarding reducing the interest rates”, states Mr. John Silvia, economist at Wells Fargo Securities LLC. He predicts that the purchases of Treasury bonds and mortgage-secured bonds will reach 500 billion dollars over the next six months.
The meetings this week are the largest “collection of action” of major central banks since the first week of October 2008, when a meeting was held in order to address the global financial crisis. In that case, all – except Japan – participated in an unprecedented coordinated interest rate reduction.
On Wednesday, the Fed will announce its decision. Nearly 18 hours later, the British central bank will publish its own decision. The ECB will follow 45 minutes after, while the Bank of Japan will announce its decisions on Friday morning.
http://www.markets247.com/crucial-33-hours-for-the-global-economy-128
