Daily Market Report 14/09/12

Throughout the day yesterday, the dollar was performing admirably in comparison with its recent behaviour… that is until 17:30.

Announcing the decision to continue rolling out its unorthodox monetary policies, the Federal Open Market Committee created extreme dollar turbulence. By proclaiming a new phase of open-ended quantitative easing, commencing effective immediately, the dollar deteriorated in a consistent trend of violent bursts.

Complementing the move, record-low interest rates are to be retained through until mid-2015, whilst completing this triad of policy extensions; Operation Twist, the $667bn transformation of short-term to long-term debt, was protracted until the end of the year.

With mounting pressure, this intrepid strategy is clearly set out to breath new life into the US economy. By targeting the long-term borrowing rates, Bernanke’s plan is to achieve a level of sustained economic growth that will break America free from the shackles of high unemployment.

Skeptics of the program point to the dangers of high inflation that accompany boosting the money supply, whilst Bernanke himself was keen to stress that this is no “panacea”, though insisted that the issue of high unemployment overshadows inflationary concerns. He also warned investors of the recovery’s main hazards, the $600bn Fiscal Cliff rapidly approaching and of course, the European sovereign debt crisis.

Over in Europe, the horizon is looking slightly brighter. Following plans to implement the unlimited bond-buying scheme and Wednesday’s ratification of the bailout fund, the Euro received further boosts from the Dutch general elections, in which the pro-austerity and pro-Euro parties emerged successful.

The ECB has even been given a new job role in an attempt at shoring up banking conditions. Now acting as the top-level supervisor for all European banks, the ECB will embrace an unprecedented relationship with national regulators in a bid to ensure Eurozone lenders abide by strict new banking laws.

Clearing these hurdles, the Euro has seen a strengthening against most major currencies over the last week. However the issues of high unemployment and sub-par fiscal austerity plans that span the Mediterranean still linger. Pressure is building on Spain to apply for a bailout, with disputes over how they should proceed splitting sides.

Though we are seeing Euro strength right now, it is far from smooth sailing for the ECB and the Eurozone and it is these problems that could take the wind out of the Euro’s sails in the coming weeks and months.

Key Economic Announcements Today

10.00am - EUR - EMU Consumer Price Index (YoY) (Aug): predicted to stay at the same position of 2.6%.

10.00am - EUR - EMU Employment Change (QoQ) (Q2): predicted to remain at its previous level of -0.2%.

13.30am - USD - Core Consumer Price Index (MoM) (Aug): predicted to slightly increase to 0.2%.

13.30am - USD - Core United States Retail Sales (MoM) (Aug): is predicted to decrease by 0.1% to 0.7%.

14.15am - USD - United States Industrial Production (MoM) (Aug): is predicted to contract to 0.1% from 0.6%.

14.55am - USD - Preliminary Consumer Sentiment

See previous Daily Market Reports