The recent gains that the euro has made against the U.S. dollar indicate the important role that quantitative easing plays in the exchange rate for these two currencies. Individuals who want to make money by trading the currency pair might benefit from being aware of the key role that these bond purchases play in the value of the two.
Euro appreciates versus dollar
The EUR/USD pair rose during the week that ended on Nov. 18, with the common currency increasing to as much as $1.3505 during that period, according to CNBC. This was the highest value for the exchange rate since Nov. 7.
The greenback sank relative to the common currency during the week when Janet Yellen, who has been nominated to serve as the next head of the Federal Reserve, testified before Washington lawmakers, helping to boost hopes that QE will not be tapered for some time.
Yellen, who currently serves as the vice chair of the Fed, is generally viewed as being supportive of these bond purchases because she has frequently voted in favor of such transactions. The central bank has been buying $85 billion worth of debt-based securities every month since late 2012, and as a result of making these transactions, its balance sheet has surpassed $3 trillion. These bond purchases are generally thought of as pushing the value of the greenback lower.
Market experts bearish on dollar
Charles St-Arnaud, who works in New York as a foreign-exchange strategist at Nomura Holdings Inc., told Bloomberg that market participants should shun the dollar because of the high chances that Yellen will become the next Fed chief.
"The market is risk-on today, so there's no need to hold [the] U.S. dollar," St-Arnaud told the news source. "The appointment of Yellen as chairwoman of the Fed has created a lot of expectations that tapering will most likely be delayed, as she's a dovish person."
In addition to St-Arnaud, many experts have been bearish about the dollar, and individuals who want to make money by trading currencies might benefit from knowing about the various forecasts that such individuals have made.
"The USD might come under pressure as the doves get their say," Emma Lawson, senior currency strategist at the National Australia Bank, told CNBC. "The market had been thinking about a December taper – I think that's going to be pushed out through to March after they speak."
It is also important for traders to know that many market participants became more hopeful that the Fed will wait longer to start tapering assets after the partial shutdown of the U.S. federal government. This event, which lasted for more than two weeks, was thought of by many as presenting significant headwinds to the nation's current economic recovery.
High hopes of continued stimulus
When providing testimony, Yellen stated that until she is convinced that the current economic expansion has obtained significant strength, she will continue to harness asset purchases, according to Bloomberg News.
These statements are similar to the ones that were previously made by Ben Bernanke, who currently serves as Fed chief. Bernanke shocked markets in June when he told members of the media after a meeting of the Federal Open Market Committee that QE could be tapered as early as 2013 and then stopped completely in the following year.
He took a more conservative tone when testifying before Congress later that summer, stating that for bond purchases to be reduced in volume, certain key indicators – including those related to the job market – would need to improve to certain levels.
The economy could soon see some improvement, at least if the statements recently made by Federal Reserve Bank of New York President William Dudley have any accuracy, the media outlet reported.
"While growth in 2013 has been disappointing, I believe a good case can be made that the pace of growth will pick up some in 2014 and then somewhat more in 2015," Dudley stated as part of remarks provided on Nov. 18. in Flushing, New York, according to the news source. "As growth picks up, I expect to see more substantial improvement in labor market conditions."
Such a change in the business climate could have significant implications for bond purchases, and therefore the dollar. Individuals who want to make money by trading currency pairs such as the EUR/USD might benefit from carefully watching the latest economic reports.
The Fed official stated that the dollar could be pushed lower as a result of the lackluster growth that the economy has suffered, MarketWatch reported. Alan Ruskin, global head of G10 foreign-exchange strategy at Deutsche Bank, weighed in on how the most recent data could affect the greenback.
He stated in a recent note to clients that the latest reports are "still not providing much support for a significantly stronger [U.S. dollar] story," according to the news source.
The post Recent gains of euro versus dollar illustrate importance of Fed’s QE appeared first on | HY Markets Official blog.
Article provided by HY Markets Forex Blog