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Old 17-08-2011, 21:02
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[COLOR="Green"]Danske Bank: EUR/USD will rise in a year
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Currency strategists at Danske Bank came up with concrete forecasts for the pair EUR/USD.

The specialists note that the United States face weaker than expected growth, long period of minimal interest rates, large current account deficit as well as the serious fiscal challenges and increased political risks.

As a result, in medium-term the bank is bearish on the greenback and thinks that in such conditions the single currency will be able to gain.

According to Danske Bank, euro will rise to $1.50 versus its American counterpart in a year. The previous forecast was at $1.36. The 3-month estimate though was reduced to $1.42 on the expectations of weak macro data during the next few months.
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Goldman Sachs: QE3 in the US is very likely[/COLOR]


Analysts at Goldman Sachs are sure that the third round of quantitative easing in the United States is coming later this year or at the beginning of 2012. The reason why the additional monetary stimulus is needed is the US economic growth slowdown and high unemployment rate.

The possibility of QE3 rose as on it last meeting that took place on August 9 the Federal Open Market Committee pledged to keep the interest rates at the record low at least until the middle of 2013 that means that US monetary authorities are ready to act employing more policy tools if the economic outlook keeps worsening.

According to Goldman, though not all members of the FOMC support the idea of the new QE – Presidents Fisher, Kocherlakota and Plosser spoke against loosening policy – that won’t stop the Fed’s Chairman Bernanke from pushing through the measures.

It’s necessary to note that though there are different forms of stimulus from the small steps such as a commitment to keep the balance sheet large, a gradual shift of the securities portfolio into longer maturities or a cut in the interest rate on excess reserves from 0.25% to 0% to very aggressive ones such as rate caps (a form of QE in which the Fed promises to buy as many securities as needed to hit a longer-term yield target), a price level or nominal GDP target, or interventions in non-government securities markets (for which funding from Congress would be needed). Goldman specialists say that from all the measures mentioned the conventional QE seems to be the most acceptable option.

To sum up, the economists expect quantitative easing to be resumed, but see several risks to such forecast: stronger economic performance, higher inflation and public backlash. As for the latter, the Fed may try to smooth the situation by proposing monthly numbers that not look as big as the $600 billion purchase over 8 months announced last year. In addition, the decision of continuing the program may be made on the monthly basis as well that would also improve the negative sentiment.

[COLOR="Green"]Pimco about the consequences of US downgrade[/COLOR]

Mohamed El-Erian, CEO of Pacific Investment Management Company, the world’s largest bond fund, think that after Standard & Poor’s has reduced US credit rating it’s likely to downgrade at least one other AAA-rated nation. The specialist notes that if it happens and the country in question is, for example, France, that will seriously hurt the attempts to save the peripheral euro zone states.

El-Erian also thinks that the governments in America and Europe may combine efforts to destroy the destabilizing monopoly power and operational influence of the rating agencies. As a result, in future investors will probably have to judge mote on their own.

Moreover, the economist is worried about the global consequences of the S&P’s move. In the course of time the loss of the top debt rating will deteriorate the reputation of the greenback as the world’s reserve currency and of American financial markets as the best investment destination.

No other nation is able and willing to replace the US at the core of the global system, so it’s difficult to estimate the potential consequences of America’s downgrade apart from the general increase in risk premia and volatility.

According to El-Erian, the main question is will US with AA+ rating become to a new normality or are further structural changes now inevitable?

All in all, PIMCO’s head believes that the US need better economic
policymaking and more coherent and it’s very important for the confronting political parties to work together as efficiently as possible.
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BarCap: Merkel and Sarkozy disappointed investors[/COLOR]


Yesterday’s meeting of French President Nicolas Sarkozy and German Chancellor Angela Merkel didn’t bring much results.

The leaders of the biggest euro zone’s economies, which are expected to lead efforts to contain the debt crisis, spoke about the plan to form a euro-zone economic council, but didn’t voice support for the creation of the common euro-zone bonds at it may affect the region’s healthiest economies. The market regards the common bonds as the last chance to improve the situation.

Merkel and Sarkozy called for spending cuts and other long-term measures to bring down debt levels but offered no immediate solutions.

Analysts at Barclays Capital note that the markets were disappointed by the focus on long-term governance issues lack of the concrete steps at the time when it’s very important to encourage the economic growth.

In the second quarter German GDP growth pace slowed down to 0.1%, while the economists were looking forward to 0.5%. The economic growth pace of the entire euro area during the same period accounted only for 0.2%, while during the first 3 months of 2011 this indicator was equal to 0.8%.
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BNP Paribas: SNB failed to affect the market[/COLOR]


The Swiss National Bank for the third time tried to weaken the national currency.

Switzerland’s central bank announced today that it will boost liquidity to the money market expanding banks’ sight deposits from 120 to 200 billion francs ($253 billion). The SNB also decided to repurchase outstanding SNB Bills and use foreign-exchange swap transactions.

Economists at Credit Suisse think that the SNB has other means of action, but for it just keeps pursuing this liquidity strategy.

Analysts at BNP Paribas note that the market was looking forward to interventions or a peg and got disappointed by the outcome. In their view, it will be very difficult for the Swiss monetary authorities to act against the market that’s seeking refuge in franc. The bank thinks that it would be near impossible for policy makers to peg the franc to the euro and commit to unlimited currency interventions as it would be too expensive and wouldn’t guarantee success.

UBS specialists think that the SNB’s move didn’t impress the market. Taking into account the lack of results after yesterday's Franco-German bilateral summit, the bank says that euro may drop back to 1.10 and even lower.

The pair EUR/CHF is still trading under 1.5000. Today it hit the low at 1.1221.
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MPC unanimously voted to keep rates at 0.5%[/COLOR]


According to the minutes of the Bank of England’s Monetary Policy Committee August meeting released today, the 9-member MPC unanimously voted to leave the benchmark interest rate unchanged at 0.5%.

The two hawks – the BoE’s chief economist Spencer Dale and the external policymaker Martin Weale – abandoned their calls for the rate hike.

It’s also necessary to note that the odds of the second bout of quantitative easing in the UK have strengthened. This time only Adam Posen repeated his proposition to raise the QE program by 50 billion pounds to 250 billion pounds, several other members seems to consider the idea.

The debt crisis in the euro area, US economic slowdown and UK's own problems persuaded the committee that inflation would fall to its 2% target without the increase of the borrowing costs. The pace of British CPI growth rose from 4.2% in June to 4.4% in July.

Rabobank International notes that the minutes were clearly dovish, though the BoE Governor Mervyn King had already indicated earlier that central bank could remain on hold until 2012.

Currency strategists at Credit Suisse believe that if cyclical indicators deteriorate during the next few weeks, there will be likely more votes for QE in September.
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On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets[/COLOR]
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