People find reasons to complain about tight policies as well as loose policies. The situation becomes more intriguing when the economy requires incentives to encourage growth, as is currently seen in the US and EU.

There are only two directions of monetary policy in this world, that is tight and loose. While tight policies give people reason to complain because of high interest, loose policy is seen with equally suspicious mind. The bets get more interesting in case the economy need baits to entice it to grow, as it is with the US and EU nowadays.

Europe is concerned of the declining inflation that have plunged Japan into its worst slump a decade ago. Many have wished the central bank to loosen its purse in order to stimulate economic activities. But many others disagree. Just like in the US where the ongoing monetary stimulus continue to be doubted by people, even policy makers.        
ecbStimulus Harms Financial Market?
The Fed Dallas' Governor, Richard Fisher, yesterday (5/3) claimed that quantitative easing have gone too long, but US failed to make use of the chance to rebuild economic foundations. Fisher, who is a member of FOMC, added, stimulus have resulted in asset-price bubble.

On the other hand, other members of the same club seemed to be considering their options much carefully. Janet Yellen in her congressional testimony last week implied that the Fed needs to ensure disappointing employment is due to harsh winter, and not because economic faulty. The same sentiment echoed by Eric Rosengren who said that if the economy really worsen because of fundamental reason, then the Fed will not hesitate to stop tapering program. But the point here is if the economy worsen.

The strength of the US and Greenback have been expected by many since the beginning of the year, and no one have dared to challenge it. In the freshly released Beige Book, the Fed believe that the economy is still growing although the terrible winter hampered the job market. The content of Beige Book which is a summary of current US economic condition, could be thought of as a good basis for the Fed's decision in the upcoming FOMC meeting. Economists quoted by Bloomberg and Market Watch certainly thought so. It is very possible that the Fed will disregard bad economic datas this winter and consequently, taper again.

Euro's Lost Clue
European Central Bank, ECB, was plunged in similar quandary, but they haven't decided on anything to go with it yet. People are getting more worried as time goes by. Add to that rising geopolitical tensions in the region, then the odds are against the Euro.  

Nearing ECB interest rate announcement today, we have to understand that there is no exceptionally good news for Euro. For them to consider raising interest rate now is quite impossible. So the only option left is loosening monetary policy. The choices are: maintain status quo, cut the rates, or launch a QE-esque policy.

In short, unless Draghi said anything that appease the market, Euro's prospects against EUR/USD is glum. It has strengthened after February inflation unexpectedly stay at 0.8%, but tumbled after Ukrainian conflict erupted and not yet able to reach its previous height. Against another major currencies too, it is still under pressure as long as peace talks haven't attain an agreement.

After market panics related to Ukraine faded, forex trading focuses back to Central Banks. UK interest rate decision that will be announced today is expected to stay the same. But what ECB will announce an hour later is harder to read, just like what the number of NFP tomorrow and will it influence the Fed's decision about tapering. Will they, or won't they?

Related Articles: