What if the Fed does not signal a deepening of concern over the US economy and downplays the odds of another futile bout of quantitative ease?
That’s the risk, as the market assumes they will set the stage at these meeting for looser policy next month.
The dollar usually benefits, at least fleetingly, from anything that doesn’t add to the Fed’s balance sheet.
What if the ECB fails to deliver on the sky-high expectations that it will do all that is needed to stem the sovereign debt crisis. That too, is dollar positive. Should the ECB fail to take steps to lower borrowing costs for the third and fourth largest economies in the Euro zone after promising it would, bond markets will be crushed and the euro will fall. Risk aversion will be revived globally and the dollar generally benefits from that sort of environment.
The Fed is little more than a side show today with the ECB taking its start turn early tomorrow afternoon in Europe.
