Dollar poised to struggle, Forex.com

Forex.com sees the U.S. dollar as possibly the ugly sister among the top ten economies (G10) in the world, as fiscal issues start to bite.

The Federal Reserve’s decision to carry on with its QE program* bodes for another potentially unpredictable and volatile quarter. Ben Bernanke, Chairman of the Federal Reserve, will soon leave his post, leaving whoever succeeds him to take the plunge on scaling back the stimulus program.

* QE Program refers to a government policy of increasing the money supply by buying government or other securities from the market. Put simply, it is a way of pumping extra money into the economy to boost it.

Kathleen Brooks, Research Director at FOREX.com said :

“This is likely to be a pivotal quarter for financial markets. With the continuation of stimulus from the Federal Reserve it appears the US is simply delaying the decision to cut the umbilical cord to global markets. Add to it uncertainty over the US debt ceiling and budget negotiations and we could see large amounts of volatile price action and plenty of market opportunities as we move to the end of the year.”

Brooks sees gold ending the year with a bang after a strong third quarter. “US debt ceiling wrangles and the prospect of an extended period of QE all add to the yellow metal’s attractiveness.”

Below are some highlighted details on how FOREX.com (FOREX.com Q4 2013 Markets Outlook Report ) sees the fourth quarter of this year:

  • Dollar weakness and the Fed continuing with the stimulus program may keep risk markets active, even if U.S. politics implode.
  • Abenomics marks its first birthday. Watch the Yen! However, Abe team have a long way to go before reaching their targets, which may trigger further currency weakness.
  • The top performer is most likely to be the British pound among the G10 nations.
  • Australian recovery may lose steam during this quarter as the Reserve Bank of Australia takes measures to limit strength, and currencies both in New Zealand and Australia are weighed down by a potential rate hike.
  • European stocks will do well, after underperforming for over two years.
  • Upside for oil may be limited. Production continues to grow in the United States, add to this continuing pressure on emerging markets and a fiscal-regulated slowdown in the US, and the likelihood of a downhill slide looks more likely.

Political intransigence in America could undermine the country’s current economic recovery. The heads of Wall Street’s largest banks visited the White House yesterday and warned President Obama and leaders of both parties that if the government shutdown and debt ceiling are not resolved soon, the consequences for the U.S. economy could be serious.

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