The coming week will put politicians to the realities of the strengthening of their currencies, which are in fact the only weakness of the dollar over the last month or so. While the dollar weakened on expectations of further QE, other options for policy makers is to follow the same path, or to postpone the tightening. Japan was a direct illustration of the limitations of unilateral intervention in the face of opposing global trends. Bank of Japan on Tuesday is unlikely to be able to avoid further easing, especially if the profits from the unsterilized foreign exchange intervention is limited (because the intervention itself were fruitless, and therefore limited). Reserve Bank of Australia will also meet on Tuesday and, although it is expected further tightening with the rate increase to 4.75, this is not a fact, if you look at the market positioning. We do not expect to get much from the Bank of England on Thursday (at least until the protocols). And although there are great expectations from the ECB press conference on Thursday, Trichet is likely to realize, will try to avoid the impression that everything will remain unchanged until the end year.
Money is not fighting for the weak dollar. The fact that the dollar weakened before and after the start of a new month and quarter, suggests that many investors do not want to get involved in this fight of the weak dollar. As mentioned above, this allows us to speak about a very interesting quarter with respect to both monetary policy and exchange rates before the meeting of G20 in the next month. The perceived inevitability of further quantitative easing by the Fed has a material impact on expectations of policy makers everywhere, with the departure of central banks from tightening further (Canada and probably Australia) or on the other hand, the transition to a more soft Policy (UK). The politicization of the force before the meeting of G20 in the next month, not least because of the fact that the relaxation of monetary policy to counteract the rise in exchange rates is unlikely that will result when rates near zero, leaving the non-standard measures as the main lever of influence.
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