The Dollar may rise if Bernanke decides not to pursue QE, and negative yields in the Euro zone bode ill for the Euro.
Earlier today the Euro had held steady against the Dollar as investors were focused on whether the U.S. Federal Reserve Chairman, Ben Bernanke, will give any hint of additional monetary stimulus when he gives testimony to Congress on Tuesday and Wednesday.
My thinking is that he will keep the door open to this possibility however, it is unlikely that he will say that the Fed has moved closer to QE since the last FOMC meeting.
In June the Fed had expanded its efforts to keep long term interest rates low, when it announcing that it would purchase an additional $267 billion in long term bonds while also selling short term securities through its "Operation Twist" programme.
The central bank had held off from going the route of quantitative easing (QE), a form of stimulus which would have seen the launch of a third round of outright bond purchases that would expand its balance sheet.
Should the Fed hold off, the Dollar could gain support against both the Euro and the Yen.
As for the Euro, both German and Dutch two year bond yields have turned negative recently. Up to now the strength of Germany's economy has made its highly liquid bonds a major safe haven from the Euro zone's debt crisis. A similar scenario has played out as regards Dutch bonds, which have enjoyed similar demand,as investors turned to bonds of Euro zone countries which have been in relatively good fiscal health.
What this means is that, to now, Capital preservation has effectively been ensured by these bond investments but, now that yields have turned more negative, this is becoming a growing concern because investors would suffer losses if they were to hold such bonds until maturity. The upshot of that, could be that we could see a retreat out of Euro zone assets by international investors in particular.
A gauge of investor confidence in Germany, the currency bloc's biggest economy, is expected to have declined to minus 20 in July from minus 16.9 in June. The ZEW Centre for European Economic Research will release this data for its index of investor and analyst expectations on Tuesday.
Earlier today the Euro had held steady against the Dollar as investors were focused on whether the U.S. Federal Reserve Chairman, Ben Bernanke, will give any hint of additional monetary stimulus when he gives testimony to Congress on Tuesday and Wednesday.
My thinking is that he will keep the door open to this possibility however, it is unlikely that he will say that the Fed has moved closer to QE since the last FOMC meeting.
In June the Fed had expanded its efforts to keep long term interest rates low, when it announcing that it would purchase an additional $267 billion in long term bonds while also selling short term securities through its "Operation Twist" programme.
The central bank had held off from going the route of quantitative easing (QE), a form of stimulus which would have seen the launch of a third round of outright bond purchases that would expand its balance sheet.
Should the Fed hold off, the Dollar could gain support against both the Euro and the Yen.
As for the Euro, both German and Dutch two year bond yields have turned negative recently. Up to now the strength of Germany's economy has made its highly liquid bonds a major safe haven from the Euro zone's debt crisis. A similar scenario has played out as regards Dutch bonds, which have enjoyed similar demand,as investors turned to bonds of Euro zone countries which have been in relatively good fiscal health.
What this means is that, to now, Capital preservation has effectively been ensured by these bond investments but, now that yields have turned more negative, this is becoming a growing concern because investors would suffer losses if they were to hold such bonds until maturity. The upshot of that, could be that we could see a retreat out of Euro zone assets by international investors in particular.
A gauge of investor confidence in Germany, the currency bloc's biggest economy, is expected to have declined to minus 20 in July from minus 16.9 in June. The ZEW Centre for European Economic Research will release this data for its index of investor and analyst expectations on Tuesday.
Posts
No comments:
Post a Comment