The Foreign Exchange Market’s Economic Uncertainty

Posted on June 24, 2011

The slowdown of the US economic recovery (latest estimates 2.7-2.9% instead of 3.1-3.3%), and the debilitating effects of Greece’s uncertain bailout are the driving and opposing forces creating havoc and volatility in the current foreign exchange markets.

The Federal Reserve confirmed that it’s second round of QE2 (“quantitative easing” – a $600 billion bond purchase program) will end as scheduled this month and that US interest rates will stay in their current range of 0.0 – 0.25%

With US initial jobless claims rising higher than estimated, along with falling homes sales and the drop in demand for world commodites, the US dollar is showing signs of appreciation as a safe-haven currency. You would think that with a weaker stock market, poor housing, disappointing employment numbers, and low interest rates, the US dollar would not be a currency of choice. However, the US dollar does not trade in a vacuum. Considering the currency alternatives and what the other major trading counterparts are experiencing at this time, speculation and investment capital are seeking a safe harbor.

There is constant rhetoric coming from EU politicians and ECB officials, that a solution to Greece’s financial debacle will be forthcoming. On Thursday, June 23rd, European Union leaders pledged to meet Greece’s funding needs for the month of July. Prior to that immediate and necessary commitment, the Euro was under pressure, losing ground, against the US dollar, even with all the problems it now encounters. But what happens after July, especially if the  opposition party in the Greek Parliament follows through with their threat of voting against the recommended austerity measures and the budget?  Will the EU/ ECB and the IMF continue to throw good money after bad?

So the question is, “Who is in worst shape?” Is it the United States, with its mediocre recovery and a deadline of August 2nd to raise the debt ceiling or face technical default?…. Or is it the European Union with the financial instabilities of not only Greece, but Portugal, Ireland, Italy, Spain, and all the major European Banks sitting on untold amounts of low rated Sovereign Debt?

For questions /information, contact

Joel Borshof, President


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