Friday, July 29, 2011

Barclays Capital comments on the situation in the US

Analysts at Barclays Capital note that situation at the FX market is going to be more complicated than the one at the stock market.

While in case of the worst outcome in the US equities just pick up the bad news, the currency markets will face 2 impacts: the big negative shock to the US in particular and the global risk shock. The former to some extent offsets the latter when it comes to the overall influence on US dollar. 

The bank still thinks that the liquidity of American market and the dollar’s safe haven status will play its role.

The specialists believe that US authorities will reach a short-term deal before August 2 as it’s impossible to find long-term solutions ahead of that. The long-term deal is very important though, firstly, because of the potential S&P downgrade and, secondly, as this is a very serious issue and if US doesn’t get its fiscal house in order, the global economy will suffer.

BarCap says that further out on the time horizon, fiscal tightening will weigh on growth and weaken US currency as the Fed’s monetary policy will remain looser for longer than the market is currently expecting.

According to the bank, Barack Obama and the Congress speaker John Boehner aren’t willing to compromise now putting the decision off to the last moments as each of them hopes that the other will back down fist.

The economists believe that it’s not the time to get too risky and adventurous at the forex market. Barclays Capital says that at the moment the most attractive currency is yen as it allows enjoying the classic risk-off trade.

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