What’s Happened Since QE3?

By Marc Chandler, Global Head of Currency Strategy, Brown Brothers Harriman

The FOMC concludes its meeting today and most observers expect at least some part of Operation Twist purchases to be folded into QE3+.

There remains some criticism that easy monetary policy by the US and other high income economies fueling inflation and de-stabilzing capital flows. We have consistently argued against such interpretations. Yet even today, Brazilian President Rouseeff was complaining to French President Holande that the easy monetary policy by Europe and the US (seemingly ignoring the strong appetite Japanese investor have had for Brazilian exposure).

As Bloomberg’s David Biller notes, Rousseff’s comments reiterate what she has said at the UN a few months ago and earlier this year in Germany.

These Great Graphic was created on Bloomberg and the show the price action since the Sept 13 FOMC announcement of an open-ended QE with the opening gambit of $40 bln purchases a month of MBS.

The top chart looks at the performance of what Bloomberg regards as “major currencies”. Of the 16 currencies, half advance against the dollar and half have fallen. In terms of magnitude, the currencies that declined fell more than the advancing currencies rose. There are high yielders and low yielders on both sides of the divide.

The second chart looks at the Brazilian real. It has lost about 2.75%. In fact recently it fell to 3-year lows against the dollar and Brazil’s central bank intervened to slow its descent.

The third chart shows the CRB index. It appears to have put in a peak the day after the FOMC meet in mid September and has trended lower since. It is now about 9% off that peak. Gold is about 3.5% lower. Copper prices are about 1% lower. Crude oil is about 13% lower.

Figure 1

Figure 2

Figure 3

Marc Chandler

Marc Chandler

Marc Chandler has been covering the global capital markets in one fashion or another for nearly 25 years, working at economic consulting firms and global investment banks. Chandler attended North Central College for undergraduate. He holds masters degrees from Northern Illinois University and University of Pittsburgh in American History and International Political Economy. Currently Chandler teaches at New York University Center for Global Affairss, where he is an associate professor.

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Comments

  1. Watching the QE process reminds me of training classes, years ago, in statistical process control. One case study showcased a shop floor foreman constantly adjusting the controls on a machine, to a point where product reject cost exceed pricing structure. The conclusion was that the machine was no longer capable of producing product profitably. A new machine with better controls was recommended. Lesson, understand the normal process range of your equipment, and let it run within its natural capability, without reacting to every normal spike, up or down. Sound familiar?