The US Fed has kept the rates unchanged ,as expected ,and let it on the markets to put up with weak dollars.The logic behind raising the interest rates would have been to the strengthen the dollar and to rectify the oil path.But as the Fed didn't raise the interest rate , the oil reached to another life-time high and also it is quite clear that Fed is not going to increase interest rates any time soon so the funds are channelized into the oil and gold.
Fed has reservations regarding the growth prospects of US , which is known to the universe now and although the dollars has been weak for quite sometime ,the weakness in dollar has been a boon in the form of export surge that has given a boost to the US GDP(which is expected to be ,thank gosh!!,at least around 1% , thanks to the Emerging economies)but this is not due to the internal growth (mentioned in my last post that US is expected to slow down or shrink ) but due to the growth in emerging economies ,which has led to the exports from US to the Emerging Economies.US is some how though not markedly sustaining in the wake of the weak dollars.
The other giant central bank to be watched is the ECB meeting coming up this week. The ECB has couple of stark differences when compared with US Fed in ways that ECB 's the main motto is to contain inflation while US fed mandate is not only to control inflation but to have sustained economic growth as well and also ECB is working as the umbrella for more than dozens of countries unlike US Fed that stands only for one country.All these traits are important to be considered when the gambit of the ECB is predicted.So far,ECB has tried to contain inflation and and hence increased interest rates , reducing the attractiveness of European goods as a result the market expects western europe to slow down.Needless to say ECB has not been able to keep up with the various demands of the countries under its purview.The whole region has undergone a not-so-uniform growth.
In the background of above mentiomed scenario any further increase in the euro 's strength will further mar the performance of the euro region.So we have two scenarios to ponder on . Firstly,In case if ECB's Mr.Trichet and its co members increases the interest rates then it will unleash more problems for the macro economics. Euro region will be further pushed into slow down , weakening dollar will further boost oil prices and rest is history to all of us.
In case if the ECB ,the second scenario, does not increase the interest rates , the thing I m betting on, that might give a boost to the exports and may cool down the fired up crude oil and that would give boost to the stock markets across the board.Hence I feel that the remedy has to begin somewhere and Mr.Trichet can play a pivitol role.
I think that ECB although should remain cautious about inflation but it should keep the interest rates unchanged and now should focus on the growth prospects of the euro region.
