Vladimír Urbánek (Kurzy.cz)
Markets  |  December 05, 2012 13:56:15

Macro view: On the scene comes the Fed and the fiscal cliff, dollar strengthens


iPoint.cz In the near future the market will be crucial for two events: meetings of the Fed's Monetary Committee (FOMC) on 11 12th 2012 and fiscal cliff.

FOMC meeting

In my opinion, there is a real chance for change in Fed policy that would distract from the established track. Change would be based on the recommendations of members Yellen and Evans, the essence of which is to combine monetary policy with economic objectives. Examples include the easing of monetary policy until unemployment gets below 6.5%, while inflation will not exceed 3%.These signals, however, have already been sent forward, and therefore can not market does not react excessively, but it still slightly boost.

Fiscal reef

I think the compromise will come quickly. Republicans had been defeated in the election and their party is completely demoralized. The party failed in many districts with large populations of non-white and female. Therefore do not want to lose those last voters rejecting cooperation and subsequent guilt for the crisis caused by "running" fiscal cliff.

So Republicans either do not have the strength to stand up to the Democrats, or they want to conquer the lost positions. This development is likely to weaken the dollar. If the fiscal cliff happens, it would mean a decline in GDP of up to 4-5%.That would hit the markets down and would also strengthen the dollar - and the dollar, investors regarded as a safe haven. Some concern has already confirmed by the fact that   positions in the dollar slightly higher on speculation growth.

Europe

In the longer term, Europe remains a major source of tension. Under political and social pressure will have a richer part of the euro zone to six months to decide between the other transfers to the south or slimming monetary union. Yet still work magic Mario Draghi, markets and so you can until the spell wear off and replace them with hard cuts, enjoy the last moments of relative quiet.

Geopolitical influences on the dollar

The dollar may also affect either changes and tensions in the South China Sea and the Middle East. Likelihood of military conflict in the South China Sea estimated at 10%. Rather, I fear Israeli attack on Iran. Since the election ended in America, I see the likelihood of conflict during the next quarter to 40%. The overall scope, success and response of neighboring countries will affect the impact of events on the value of the dollar. Certainly, the dollar will strengthen. This situation is not a simple business, but would be careful especially should give dollar bears.

Nick Beecroft , Director, Saxo Capital Markets UK, Saxo Bank

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