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The Markets Reaction to Quantitative Easing II….
Preferred Financial Services analyzes what impacts are of the latest round of quantitative easing enacted by the Federal Reserve.
Over the past week, all the major players in the markets have moved due to the latest round of money printing. Gold has surged to a recent high of over $1,400 per oz. as investors have flocked to the safe haven that gold provides during periods of uncertainty or expected inflation. Oil has also seen a spike as of late since oil is traded on the international markets using US dollars. As the dollar loses value, it takes increasingly more dollars to purchase a barrel of oil, thus oil will continue to trend upwards as long as the dollar experiences continued weakness. The actual stock markets have also seen a relative surge mostly due to the lower values of the dollar. Many firms that have huge markets for their products overseas will see a benefit with a weak dollar. Their products will be cheaper to sell in foreign markets and thus should drive up revenue and profits. While this may seem like a good way of boosting the economy, a dollar that is valued to low will not only cause many commodities to become even more expensive but it could also trigger a new trade war as other countries also devalue their own currencies to remain competitive on the international market. The Fed took a gamble with its latest moves and it will be at least 6 months before we can say with any certainty if it paid off or if we just shot ourselves in the foot with a devalued dollar and ever increasing commodity prices.
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