USD

Ashraf - as a simpleton in these things would the following Plaze Accords-type scenario for what I understand should be the key summit meeting in Seoul on Nov 20th be totally unrealistic?

All major players seek to avert a USD-led race-to-the-bottom and 'currency wars' threatening to bring trade wars and deepening depression. The US administration, following setbacks in the Nov elections and hostility to more QE, seeks a way to continue purchases of its bonds to suppress its interest rates (of international concern as any rise in rates could cause havoc in the CDS sector's huge interest-rate swaps weighting and precipitate another major global crisis).

China seeks to ease pressures to revalue the yuan upwards given how this would effect its domestic labour market. The Eurozone, Japanese, Swiss and UK seek to lower the value of their currencies to increase their growth prospects - the UK and Eorozone happy thereby to find a justification for reducing contentious cuts programme as well as having further inflation induction to help devalue their debts.

The Seoul accords produce a global realignment of currency policy to revalue the USD upwards, particularly against the Yuan and the Euro. by co-ordinated international buying of USD bonds via selling of China/Asia currencies, Euros, JPY, CHF and GBP. This alleviates the US of having to resort to further substantial QE.

The US, with its revalued USD, leads the purchase - along with China/Asia - of bonds of the most debt-exposed Eurozone, JPY, CHF and GBP as a quid pro quo to suppress these countries' interest rates without having to substantially increase their QE likewise, a source of satisfaction to Germany as the major Eurozone player.

In short - there's an international accord to apply the same principles as China has recently used vis-a-vis the Yuan/JPY in order to stabilise currencies and maintain low interest rates but with QE reduction.

Large falls in stockmarkets as a result of reduced QE expectations would be mitigated by rising confidence in international stabilisation and rising Asian and other markets benefiting from their reduced currency valuations.

Gold would fall, helping China/Asia to increase their very low holdings, with the accords possibly including agreement by major gold holders like the US to sell part of their hoard to them. This would assist the redistribution gold holdings more equitably among the major players as part of a longer term strategy to replace the USD as global lead currency with a basket currency including the metal.

You and forum members will doubtless be able to shoot dwon such a simplistic hypothesis with ease!

John

USDx will regain 78 and could recede from there but equally likely will stay at 78 until FOMC

"Fed have done incredibly well just talking about QE2. A timely reminder of the power of the Fed to all other parties."

My prediction is that in a year's time it will be apparent that the Fed does not have a clue as to what they are doing and that they never really had a clue. An impotence in the face of larger forces.

QE1 didn't work, and I don't think any QE2 will either.

USDx looks to regain 78 ... if reps win big my US friends insist QE comes if at all in tiny steps
not any big step. US will move towards austerity . Midterm could bring a trend reversal of USD.
EUR is in all respects overvalued.

Fed have done incredibly well just talking about QE2. A timely reminder of the power of the Fed to all other parties.