EUR/USD reached its highest level in five months after the positive news from the eurozone increased investors’ risk appetite. German Constitutional court cleared the way for ratification of region’s permanent bailout fund (ESM) and the U.S. Federal Reserve announced its third quantitative easing measure, saying the central would pump $40 billion into the economy (by purchasing mortgage-backed debt) each month until the labor market showed sustained growth. The FOMC said it would probably hold the interest rates near zero at least through mid-2015. The U.S Central bank said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens”.
However, it is hard to see how another round of quantitative easing would help the struggling U.S. economy. Long-term interest rates are already at historic lows. Even if quantitative easing puts effective downward pressure on rates, the economy would be unlikely to benefit. I don’t think what the Fed is doing addresses the real issues. I don’t think it puts people back to work. It doesn’t make people buy houses. Labor Department figures showed unemployment claims increased 15K in the week ended September 8 to 382K.
Meanwhile, on the other side of the Atlantic, the European Central Bank president Mario Draghi continues to encounter resistance from the German Central Bank, Bundesbank after his decision to purchase sovereign bonds in unlimited quantities from debt-plagued eurozone countries to reduce borrowing costs. President Draghi said “It would be nice if we could always work together with the Bundesbank, but currently we have different views about how the crisis should be overcome. What we are doing is monetary policy. There is a fundamental difference between buying bonds directly from countries on the primary market or on the secondary market, where the money goes to the bond buyers and not the country”.
Speculative traders trimmed their open short EUR position by 7% from a week earlier to reach a net of $15 billion, according to the report released by the Commodity Futures Trading Commission. CFTC’s Commitments of Traders data also showed that currency traders increased their open long AUD position by 12% from a week earlier to reach a net of $7.1 billion. They also increased their open long JPY position by 38% to reach a net of $5.3 billion, the data showed.