The slide in US dollar value reached its crux as the US dollar hit its lowest level since the early half of May while markets dealing in stocks and bonds curbed a fair share of their revived inclination for risk on Thursday as investors took their time to check whether the Federal Reserve of the US would announce a new round of printing of currency.
The MSCI index depicting international shares was experiencing a five-month high this Wednesday following the green light by a German court regarding the new bailout fund for the eurozone decided upon by the European Central Bank. However, quite unexpectedly, it happened to be 0.5 percent lower by 0830 GMT with London .FTSE markets, CAC-40 .FCHI of Paris and DAX.GDAXI of Frankfurt being all in the red.
Commodities ranging from gold to oil along with bond markets of the European government maintained a tight range, prior to the decision by the Feds which is projected to be released by 1630 GMT. Two hours later, Chairman Ben Bernanke is going to host a news conference regarding the slide in US dollar value.
A survey taken by news platform, Reuters, indicated that economists increased their bids of a third round of bond buying by the Feds, unlike the European Central Bank, known as QE or quantitative easing to 65 percent from 60 percent in the month of August. Even the dollar had to suffer from expectations for QE which would be almost similar to printing money and diluting the slide in US dollar value. The euro managed to continue its four-month high streak compared to the US currency assisted by the signs of the eurozone slowly starting to overcome its debt burden.
Market traders believe that any sort of good will towards risk assets, may be more than FX land, could be undone rather fast if Ben Bernanke does not live up to his own as well as to the expectations of the Federal Reserve board today. If no action is taken, it will call for great disappointment. The QE3 is of great interest due to indications of the extension of the zero interest rate plans.
In Europe, the data calendar is comparatively light on Thursday. But more numbers are expected to come in from the US, ranging from producer prices to employment. Expectations from the Fed Reserve coupled with a chance for an increase in tensions in the Middle East region due to the killing of a US diplomat in Libya led oil prices to remain close to $116, consolidating the rise of 30 percent witnessed since the later half of June.
The declaration of the Fed Reserve concerning a probably new round of purchases based on mortgage is being viewed by a number of economists as a welcome move but one that will not carry an ongoing sense of long term advantage for the environment of the economy.
Europe is still under scrutiny from the world due to its capacity to overcome its debt related problems while the US copes with the slide in US dollar value. There are certain hopes that the bond buying policy of the European Central Bank may lead to a stabilization of matters. This led the central bank in South Korea to suddenly leave rates of interest stable on Thursday following the pattern of the European Central Bank.