Bank Research Consensus Weekly 09.24.12
FX: EUR/USD Forecasts Lifted
Arne Lohmann Rasmussen, Chief Analyst, Danske Bank
When we published FX Trends in August we argued that EUR/USD should see a strong move higher on global policy easing (pencilling in 1.27 in 3M) but also that it was too early to dismiss the underlying euro downtrend that had been running for more than a year. For this downtrend to reverse, we argued, global growth would have to recover and the Fed would have to outperform the ECB in terms of monetary easing. The first requirement has not yet been fulfilled but the second has been more than met with the latest Fed open-ended easing, which is dollar negative to such an extent that we believe we can say with a high probability that the euro downtrend has now ended. Furthermore, the ECB rescue plan has removed a significant part of the tail-risk that prior was attachedto the euro.
Do Not Underestimate QE3
John E. Silvia, Chief Economist, Wells Fargo
The Fed’s widely expected decision to embark on a third round of quantitative easing has ignited an unusually outspoken wave of criticism. Doubts are being voiced about whether further expansion of the Fed’s balance sheet will provide any meaningful benefit to economic activity, as growing inflation concerns will likely send commodity prices higher, further depressing household purchasing power, which is already struggling to keep its head above water amid sluggish job and income growth and sharply higher food and gasoline prices. The Fed justified its latest move by pointing to its dual mandate and noting that “grave” concerns about the labor market clearly outweigh concerns that the current low rate of inflation may be put in jeopardy by the Fed’s actions.
Canada – Inflation & Housing Cooling, Rate Hikes Delayed
Leslie Preston, Economist, TD Bank Financial Group
After rallying in the wake of the Fed’s announcement last week, financial markets now seem to be suffering from a QE3 hangover. The Canadian dollar and the price of oil have both weakened and the TSX is off slightly on the week.
Compiled by David Song, Currency Analyst
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