While many of the consequences of stimulating economic growth through currency devaluation and cuts in interest rates are known and intended, some are not. In the case of Japan’s lost decade, for example, a depressed currency and low interest rates led to carry trading.
With QE nearly finished the Fed now has to outline their plans going forward. Will there continue to be reinvestment of the QE bonds that roll off, what many expect or will market conditions decide that.
A healthy crop extended into this week’s progress report, which showed conditions unchanged and harvest progressing at a favorable pace. Corn rated at 74% good to excellent is 20% higher than last year’s crop rating.
The credibility of the Federal Reserve appears to be waning as the market refuses to take their threats of pulling away the liquidity punchbowl seriously. On what was, by any objective measure, a spectacularly bad non-farms payroll number on Friday, the S&P 500 futures rallied
Adding to the appeal of the euro carry trade is the perception that the euro currency may depreciate further in response to ECB stimulus, potentially permitting investors to make a spread upon repayment of their currency loan.
The U.S. dollar reached an 11-month high on two very positive days, Aug. 19th and 20th respectively. While the Dollar Index is at its highest level since September 2013, the Euro broke the 1.33 level for the first time since that same time.
the U.S. and the Eurozone economies are at different points in their economic cycles: while the United States has begun the process of exiting its Quantitative Easing (QE) program that has been in place for years, the ECB is merely hinting at taking a more aggressive stance.