International Financial Outlook by Lloyds TSB

Generally weaker US economic data and a decisive shift by the Federal Reserve towards a second phase of quantitative easing (QE) have conspired to weaken the US dollar over the past month. Generally weaker US economic data and a decisive shift by the Federal Reserve towards a second phase of quantitative easing (QE) have conspired to weaken the US dollar over the past month. If the Fed does choose to undertake further asset purchases (a move at November’s FOMC meeting looks increasingly likely), the US economy seems likely to gain even more traction during 2011 (private final demand has already shown signs of life recently). We retain a positive stance on the US dollar going forward, with our end-2011 forecast versus the euro standing at 1.20. But a high degree of spare capacity in the US economy means the first increase in the federal funds rate still seems some way off. We look for this to occur in 2011 Q4.

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