Impact of US elections on the fiscal cliff, euro, dollar, and interest rates

Getting down to business The great British geographer and founding father of geopolitics Halford Mackinder famously said in the first decades of the 20th century:  “Democracy refuses to think strategically unless and until compelled to do so for purposes of defense.” Mackinder stated that a politician often thinks in principles, ideals, and morality, instead of reckoning, as he should, with...

Political Update: Will Romney clamp down on Fed?

This week the Republican party holds its national convention and it will officially declare Mitt Romney its presidential nominee. Romney will make his appearance tomorrow. The day after that, Federal Reserve Chairman Ben Bernanke will deliver what could be his closing argument in considering launching a new bond-buying program when he speaks at the central bank’s Jackson Hole...

Rallies become ever briefer

Given recent events, a further “relief rally” in stock markets and commodity prices would have seemed likely: Even though the Fed has only extended its Operation Twist for now, many investors believe the central bank will announce a new round of quantitative easing sooner or later given its concerns regarding the US economy and lower inflation expectations; The outcome of the Greek...

Fed disappointment?

Most expect some good news coming from the US this week, albeit not in the form of data that would suggest a continued strong economic expansion. Rather, analysts anticipate the Fed to leave the door open for a next round of quantitative easing as soon as the US economy starts to show clearer signs of running out of steam. This would boost equity prices and prices of other risky assets such as...

Inflation expectations limit Fed’s elbow room

The debate about the appropriateness of the present stimulative monetary policy in the US is heating up more and more. From an economic angle the policy is justifiable. Yet the drawbacks –higher commodity prices and inflation expectations – are increasingly apparent. Another round of quantitative easing is now less likely. In combination with relatively upbeat growth prospects this could push...

Rising real interest rates in US underpin dollar

The drop in EUR/USD over the past weeks could merely be a correction to the uptrend. Also because the Fed is deliberately trying to weaken the dollar in order to underpin the US economy. In our view EUR/USD will likely continue to fall. Rising real interest rates are helping the dollar and we think this upswing will be on the cards for another while as the US economy continues to pick up. In...