Dollars Perfect Storm
The Dollar may have well run into the Perfect Storm….. The Central Bank in Europe is likely to raise interest rates just five days prior to the FED’s meeting where the FED is expected to lower interest rates. Inflation in Europe has picked up and it seems likely that the European Central Bank will raise short term interest rates to 4.25% from 4%.
This would be a boost for the Euro and a negative for the Dollar. This may result in higher prices for Gold and other precious metals as well as Oil. The European Central Bank is facing an increase in inflation in October to 3.3% and economist have raised their estimates to 3% from an earlier 2.7%. They will be looking at a trend that may well be headed higher.
The big problem for the European Central Bank is that they publish inflation targets and they have pledged to keep inflation “below but close to 2%” so they will have a problem here. With a reading of 3% at this time, this is the highest reading in inflation in six years. At the same time the German inflation rate is at 13%. The European banks have suffered huge losses because of the mortgage backed securities meltdown.
So the European Central Bank has alot on its plate, and the 19 member governing board has made statements that it is undecided on what it will do. I see it this way….. I believe the European Central Bank will keep its eye on inflation and increase the interest rate .25% and infuse cash into the financial markets. If the European Central Bank increases rates and the FED cuts rates, then the gap between both will be reduced to .25%.
And the likely outcomes are:
The Dollar will fall
The Euro will climb
Gold will climb
Oil will climb
US equities will rally but then fall off
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December 4th, 2007 at 11:26 pm
[…] washingtonianliving wrote an interesting post today onHere’s a quick excerptThe Central Bank in Europe is likely to raise interest rates just five days prior to the FED’s meeting where the FED is expected to lower interest rates. Inflation in Europe has picked up and it seems likely that the European Central … […]