by Michael Bolleter
Markets were roiled last week by the Fed’s announcement that it is considering another round of quantitative easing. Atlanta Fed President Lockhart stated, “For me, personally, it is not a foregone conclusion that more accommodation is required...” This unexpected announcement led to a 4.2% drop in the Dollar against the Euro as investors feared currency debasement. Many investors fled to Gold as shown by its continued climb, having recently hit record highs above $1300/oz. This trend also appeared with other precious commodities.
Going forward, expect currencies markets to be particularly volatile as investors and governments try to feel their way through this uncertain environment.
On that note despite assertions of intervention by the Japanese government, expect the yen to continue its rise, as government intervention has proven ineffective in stopping currency appreciation. Over time, expect intervention to be offset by investors looking to diversify from US dollar holdings and Japanese investors looking to hedge out their dollar risk.