--Fed may not rush into more QE despite dovish minutes
--Monetary easing still more likely elsewhere in the world
--Slower growth data from euro zone, U.K., Japan and China
(This column was first published on Thursday.)
By Nicholas Hastings
Don't dump the dollar.
Although the immediate reaction to Wednesday's
more-dovish-than-expected Federal Open Market Committee minutes has
been to do just that.
In the document, Fed members said they are ready to pull the trigger
on more quantitative easing if economic data doesn't soon improve.
Within minutes, the U.S. currency found itself being sold against most
other majors and against some minors too.
But this looks much more like just a knee-jerk reaction to the
prospect of lower U.S. yields, rather than a considered judgment.
First, the chances are that the Fed may not ease policy again and, if
it does, it may not move right now. And second, look at the
alternatives. The euro, the yen, the pound and even the Aussie dollar
have even greater problems of their own.
But first the Fed.
U.S. data that has emerged since the FOMC meeting was held at the
start of the month has all largely been positive. And it is more than
likely that even more good numbers will emerge before the next FOMC on
Sept. 13, including the latest set of non-farm payrolls on Sept. 7.
But even before then the market will get a better gauge of the Fed's
mood when its chairman, Ben Bernanke, gives his key speech at the
annual gathering of leading economists at Jackson Hole in Wyoming at
the end of this month.
And the gauge may yet prove a lot less dovish than the recent minutes
suggest. Remember, as much as Mr. Bernanke and co want to keep markets
happy with promises of more easing, they might prefer to wait until
after November's presidential election and any possible charges of
political favoritism are out of the way.
While all this talk of easier Fed policy may fade again, the pressures
on other major central banks continue to intensify.
The most obvious case is the European Central Bank, which is
desperately seeking a solution that will put a cap on the yield of
debtor countries and prevent the euro-zone crisis from spreading.
Pressure on the ECB to come up with a suitable proposal for injecting
more liquidity will become more intense in the weeks to come as
Germany remains undecided on whether to prevent Greece from falling
out of the euro zone.
Recent data, including the latest purchasing managers' indexes on
Thursday, suggest that while Germany is being infected by the problems
of weaker euro-zone countries, the country isn't suffering enough to
sway public opinion.
According to Carsten Brzeski, a strategist with ING Financial Markets,
this means that Angela Merkel will find it that much more difficult to
get public support for another Greek bailout.
"As a consequence, Chancellor Merkel looks likely to continue with her
gradual strategy towards conditional integration."
And for the ECB, this means even more pressure to stop contagion.
For the Bank of England, this also isn't good news. A protracted
crisis in the euro zone means a protracted recession in the U.K.
With new budget figures showing that the government's deficit is
growing even more rapidly than expected and that more fiscal
tightening might be needed, the central bank will once again be
expected to run to the rescue.
Things aren't any better on the other side of the world.
Repeated attempts by the Bank of Japan to stimulate the Japanese
economy have failed and with recent trade data showing a collapse in
exports to places such as the euro zone and China over the last year,
the central bank will once again be expected to ease policy.
In China, meanwhile, slower global growth prospects are also taking
their toll with new data showing that private sector manufacturing has
fallen even further into contraction. This is likely to raise
expectations of another easing in Chinese monetary policy as well.
In Australia, strong domestic growth has allowed the Reserve Bank of
Australia to put off any further rate cuts for now. But this may not
last long as weaker manufacturing activity in China will reduce demand
for Australian commodities and probably bring a swift end to the
country's recent mining boom.
The RBA will find that it is no longer an exception and that Aussie
rates will have to start coming down as well.
So even dollar bears who will look for alternatives to the U.S.
currency could find there are not many places to go and that, despite
the latest misgivings about U.S. policy, the dollar is still a safer
bet for now.
(Nicholas Hastings is a Senior Correspondent in London for Dow Jones
Newswires who has written about foreign exchange for more than 20
years. He previously covered a variety of markets, including equities,
fixed income, commodities and energy. He can be contacted on
+44-20-7842-9493 or by email: nick.hastings@dowjones.com or on twitter
@NickHastingsDJ)
(END) Dow Jones Newswires
August 24, 2012 01:45 ET (05:45 GMT)
No comments:
Post a Comment