User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday March 23, 2009 - 12:38:15 GMT
Lloyds TSB Financial Markets -

Share This Story:
| | Email

Economics Weekly - Aggressive quantitative easing is underway; Weekly economic data preview - Final UK & US Q4 2008 GDP & a plethora of key speeche

Economics Weekly 23 March 2009


Aggressive quantitative easing is underway


An increasing number of central banks are directly expanding money supply…

More and more central banks seem to be embarking on the process of injecting money directly into their economy through expansion of their balance sheets, or ‘quantitative easing’ in the modern jargon. Last month the Bank of England announced that it would buy £150bn of bonds, of which £100bn will be government securities. Last week, the Japanese central bank raised monthly purchases of government bonds to Y1.8tn and the US Fed said it would buy $300bn of longer dated US debt and $750bn of agency debt. This process of balance sheet expansion is simply one where central banks buy securities from the private sector or from the government without an offsetting sale of its own or government paper. In fact, it is not a new approach or even an unusual one; so unconventional it is not but it has been little used. The Bank of Japan used it between 2001 and 2006 to try and end its financial crisis (it did not work) and the US Fed started buying private sector debt from September 2008 though not government debt. Currently, the ECB has not embarked on quantitative easing at all. It used to be more common practice to use this tool to both increase and decrease money supply as a way of controlling price inflation and influence economic growth but it went out of fashion because it became associated with excessively higher price inflation.


…as interest rates have been cut to effectively zero…

The reason why quantitative easing is being reactivated is that after interest rates were cut to record lows in many countries – effectively exhausting their use as a monetary tool - and after a plethora of other measures to kick start economic growth and to deal with the credit crisis, the turmoil in financial markets still continues and economic growth is weakening. Up until September last year when the Fed started to buy private sector and agency debt (Freddie Mac and Fannie Mae), most of the efforts to deal with the credit and financial market crisis did not involve an attempt to increase the monetary base (notes and coins in circulation and bank reserves at the central bank).


Effectively, the many efforts to kick start financial markets with emergency loans, liquidity back stops and the purchases of private sector debt was offset by sales of central bank bills so that the impact on base money was relatively small. However, these efforts did lead to a sharp expansion in global central bank balance sheets, as shown in chart a. This highlights the international coordination of the efforts being taken by the US, UK and EU central banks to provide the private sector in these economies with the sort of liquidity it is no longer able or willing to provide itself. (In Japan’s case, the rise in its central bank balance sheet has been smaller because its financial system was less directly affected by the solvency issues raised by the credit crisis.)


This action by these central banks probably prevented the collapse of the financial system in these economies, and so prevented the dire consequences this would have meant for the world economy in general. But they have not stopped turmoil in financial markets nor prevented the economic downturn from getting deeper. This seems to be where quantitative easing comes in; especially since government fiscal balances have perhaps expanded as far as they can without triggering an adverse reaction in bond markets. The idea behind quantitative easing is to boost money supply (see chart b) and so raise economic growth at a time when price inflation is expected to stay low because of a large negative output gap that is resulting from actual output falling far below potential in the world economy at large.


…this runs a risk of accelerating price inflation in the future if it is not reversed quickly enough…

The quantitative monetary policy approach being adopted stems from an old concept in economics that MV=PT. The M is money supply, the V is the velocity circulation of that money in the economy, the P is price inflation and the T is the level or value of transactions in the economy. Directly boosting M can lead straight to price inflation P if it occurs at a time when the economy is already operating at full capacity. But if the boost to M occurs when the economy is operating below its potential, then all it will do is to cause P to not fall by as much as it would without a boost to M. This is in fact one of the explicit aims of current monetary policy - to boost price inflation so that the economy does not suffer from deflation, or falling prices, by raising economic activity by providing liquidity to households and companies to spend and so increase T. The reason is a fear amongst central banks that a falling M weakens T and P together. To avoid this, P needs to be boosted. This is something that the Bank of England in particular has pointed to in its inflation forecast, which is that there is a risk of price deflation as actual CPI undershoots the 2% inflation target. However, there are risks with this approach in the current environment. One is that the proceeds from the purchase of private sector debt, in particular from the banking sector, simply gets saved. One sign of this would be if quantitative easing boosts base money (money in circulation and bank reserves at the central bank) but does not boost broad money; this would do nothing to either boost economic growth or prevent deflation. This is in fact exactly what happened in Japan and why quantitative easing did not work there; base money supply increased but broad money supply did not as the banks saved the money they received by raising their reserves at the Bank of Japan and not lending it on, and so P continued to fall or stayed flat and economic growth stagnated. To avoid this, the central banks in the UK, US and elsewhere where quantitative easing is being tried, may not pay interest on deposits of money held at the central bank other than that required for prudential liquidity reasons. Of course, another risk is that even if M or board money increases, there could be an offsetting fall in V, so that prices and economic growth still do not recover.


..but that day still seems a long way off and the main risk currently is one of recession and deflation or falling prices

There are already signs that the lack of confidence in the wider economy generally and worries about solvency are leading to increased savings rather than increased spending by the private sector generally. However, it is still early days and it is not clear that this will be the final outcome of quantitative easing. By driving down bond yields (see chart d) and making other riskier investments more attractive, the aim is to encourage investment and spending. This means a flat government yield curve, helping to keep down mortgage costs and so inhibit insolvencies amongst households and companies, breaking the cycle of falling confidence. It should also lead to a narrowing of the corporate bond spread, but this might not happen until central banks start to buy company bonds directly and more aggressively, see chart e.


Of course, this policy of quantitative easing has to be reversed when economic growth starts to recover as history suggests that price inflation could really take off. But for the moment, the evidence is that this risk is still some way off. Hence, quantitative easing is deemed necessary and will be implemented, as the interest rate option (see chart c) has been exhausted and government spending increases are close to their limits.

Trevor Williams, Chief Economist, Corporate Markets


Weekly economic data preview 23 March 2009


Final UK & US Q4 2008 GDP & a plethora of key speeches

Only the Norwegian Central Bank meets to set interest rates this week - we expect a 0.5% cut to 2%. But a plethora of key policy makers’ speeches feature, offering to add addition insight into their interpretation of current economic and banking events and the likely policy implications. BoE members’ testimonies to the House of Commons Treasury Select Committee, US Fed Chairman Bernanke and Treasury Secretary Geithner’s testimony to the House Financial Panel over AIG and SNB Chairman Roth’s speech, all on Tuesday, are potentially among the most important. Government bond markets will be kept busy with the US Treasury auctioning a cumulative $94bn of 2, 5 and 7-year notes, while the UK BoE plans to purchase another £2.5bn and £3.5bn worth of gilts in the secondary market on Monday and Wednesday, respectively. In addition, the BoJ publishes minutes of its 18/19 February MPC meeting, which may throw light on plans to provide up to Y1,000bn of loans to large commercial bank in the wake of the stock market slump and plunging exports. Key economic data releases include final Q4 2008 US and UK GDP national accounts data. Also, inflation reports for February are published in the UK and the US, while European business  March will widen the debate about the ECB’s next steps to ease monetary policy.


􀂄 UK GDP national accounts data are published on Friday. They will confirm that the UK economy contracted by 1.5% on a quarterly basis in Q4 2008 and will provide the latest assessment of the detailed breakdown of expenditure and output. This final release also includes useful information including the household savings ratio (which may have increased) and the private non-financial corporations’ net surplus (which may have shrunk). In addition, the CBI distributive trades’ survey for March and the official retail sales release for February are likely to underpin the view that consumer spending contracted in Q1. CPI inflation data is also published - we forecast a fifth month of falling prices. The RPI figure could decline on an annual basis, maybe by 1.3%; significant disinflation has already taken place, from a high of 5% in September 2008 to a low of 0.1% in January 2009.


􀂄 The final Q4 2008 US GDP release, due Thursday, is expected to confirm a contraction of 6.2% on an annualised basis. The GDP deflator will also attract attention, as it is expected to show that economy-wide inflation has fallen dramatically. Information on economic trends in Q1 include personal income & spending figures and existing & new home sales data, both for February. Both sets of numbers are likely to suggest more weakness in consumer activity. Moreover, durable goods orders (a proxy for business investment) are likely to have contracted by 2.7% in February, raising expectations of more deep cuts to come in US industrial output. The core PCE deflator, the Fed’s benchmark inflation rate, although off December’s low, may have grown only very modestly, by 0.1%, in February.


􀂄 Eurozone economic news has brought little comfort in recent weeks. Adding to the mix the new challenges faced by higher oil prices (WTI futures breached the $50 a barrel level last week) and the 8% rise in €/$ this month, the ECB is now under considerable pressure to make additional cuts in interest rates and to follow the UK and the US in introducing unconventional monetary easing measures. So, while another 0.5% cut in official interest rates to 1% at the ECB’s policy meeting next Thursday is very likely, the question is, should and will the ECB do more? Undoubtedly, market participants will be gleaning ECB policy makers’ speeches until then for hints that it will join the US and the UK in introducing quantitative easing. Pressure is likely to intensify on the data side, as EU-16 industrial orders are likely to confirm that investment goods production & exports will continue to be major sources of contraction in Q1. Finally, business survey data for March, including the PMI manufacturing & service surveys and the key German IFO survey, are forecast to stay weak.

Nichola James, Senior Economist


Economic Research,
Lloyds TSB Corporate
10 Gresham Street,
London EC2V 7AE
0207 626 - 1500


Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.





Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Tue 17 July 2018
AA 08:30 GB- Employment
A 13:15 US- Industrial Production
AA 14:00 US-Powell Testimony
Wed 18 July 2018
AA 08:30 GB- CPI
A 12:30 US- Housing Starts/Permits
AA 14:00 US-Powell Testimony
Thu 19 July 2018
AA 1:30 AU- Employment
AA 08:30 GB- Retail Sales
A 14:30 US- EIA Crude
A 12:30 US- Weekly Jobless
Fri 20 Jun 2018
A 12:30 CA- CPI/Retail Sales

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105