Overnight, the US dollar has had a rallyon what I'd call the "We-can-print-money-too!" theory of central bank easing.
We had ECB head Claude Trichet refute Bundesbank head Axel Weber's assertion that the ECB should stop buying bonds. Also, we had two groups (E&Y, CEBR) state that the UK economy will be flat in Q1 2011 and that former policy maker David Blanchflower said, "We (UK) are desperately in danger of a double dip and the last thing you do in a recession is make things worse. The BOE unfortunately looks like the only 'plan B' the government has, but quantitative easing just doesn't act fast enough." The CEBR says the Bank of England will expand stimulus plan by 100 billion pounds.
As readers of my posts know, I've been stating for some timethat the markets will be disappointed by whatever the Federal Reserve does on November 3rd. Initially, the markets reacted strongly to October 1st NY Fed Dudley's speech on quantitative easing and the $500 billion size suggested for 50-75 basis points. Over the two weeks, the bond market rallied with the US Treasury 10 year yield dropping from 2.75% to 2.35%, the Euro rallied against the US dollar from 1.3550 to 1.4150 and the S&P 500 rallied 3.75%. Chicago Federal Reserve Charlie Evans stated on Saturdaythat the US was in a liquidity trap and advocated the Dudley program.