Investopedia's Forex Outlook For October 2012: News
  1. Investopedia's Forex Outlook For October 2012: Introduction
  2. Investopedia's Forex Outlook For October 2012: News
  3. Investopedia's Forex Outlook For October 2012: Upcoming Events To Watch

Investopedia's Forex Outlook For October 2012: News

U.S. Economy Stalls
The U.S. economy appears to be stalling once again, but the Federal Reserve's actions could still work their magic. FedEx's CEO Fred Smith noted that trade has slowed to levels seen during the last two economic downturns, as high unemployment and weaker manufacturing growth took its toll on the economy.

Luckily, the Federal Reserve's third round of quantitative easing (QE3) is expected to modestly improve things, according to HSBC Securities' Chief U.S. Economist Kevin Logan. While these effects on the economy may take some time to materialize, Mr. Logan believes home buyers will see lower interest rates, which could help spur consumer spending.

Due in part to this modest outlook, the U.S. dollar has fallen against six major currency pairs. The currency is down 3.18% against the euro, 2.39% against the Swiss franc, 2.42% against the British pound, 1.42% against the New Zealand dollar, 1.20% against the Canadian dollar and 1.13% against the Japanese yen this month.

SEE: 7 Ways To Position Yourself For Recovery

Eurozone Struggles but Agrees
The eurozone had a major breakthrough earlier this month after Germany's courts approved the terms of the European Financial Stability Mechanism (EFSM), but bearish economic data later during the month curbed the market's enthusiasm. The euro zone's composite PMI, which combines manufacturing and services surveys, fell to 45.9, which was below even the lowest forecasts.

Interestingly, Germany has remained relatively immune to the decline. The country's PMI manufacturing and services indices showed surprise upticks, which suggests that things are getting significantly worse in other eurozone countries such as Italy and Spain. Meanwhile, France has been experiencing strong declines in its business confidence.

The lackluster performance has led many traders to speculate that the ECB would cut interest rates in October. Economists expect a rate cut from 0.75% to a record low 0.5% in October, while Governing Council member Luc Coene reinforced the sentiment by saying that the ECB could cut its main interest rate and even put its deposit rate into negative territory.

SEE: 4 Misconceptions About The Eurozone Crisis

Japan's Economy Takes a Break

Japanese exports fell for a third straight month in August, reaching its lowest point since February. While the 5.8% drop wasn't as bad as economists expected (-7.3%), the financial markets remain concerned that the country's gains from rebuilding efforts have come to an end, while the negative sentiment in the U.S. and eurozone isn't helping.

The Bank of Japan (BOJ) responded by unexpectedly boosting its asset buying and lending scheme by 10 trillion yen in late-September, warning that the economy's recovery could get delayed by six months. While the likelihood of further easing isn't very high, some analysts believe the central bank could ease again at the end of the year or early next year.

Britain Shows Signs of Recovery
Britain's economy has shown some signs of recovery, according to Bank of England Governor Mervyn King, although he warned that it would be a slow one. Mr. King suggested that the recovery could come as soon as next quarter, driven by the agreement in the eurozone. However, he cautioned that the recovery would take a long time and that it depends on how the rest of the world performs.

Despite the optimistic mood, the financial markets remain concerned about the country's widening budget deficit, which hit record levels in August. The weakening economy drove down corporate tax receipts, while boosting social benefit payments. While these results weren't necessarily unexpected, they do represent long-term issues that need to be resolved.

Investopedia's Forex Outlook For October 2012: Upcoming Events To Watch

  1. Investopedia's Forex Outlook For October 2012: Introduction
  2. Investopedia's Forex Outlook For October 2012: News
  3. Investopedia's Forex Outlook For October 2012: Upcoming Events To Watch
RELATED TERMS
  1. Economic Recovery

    A period of increasing business activity signaling the end of ...
  2. Dollar Bull

    An investor or speculator who is optimistic about the outlook ...
  3. PIIGS

    An acronym used to refer to the five eurozone nations, which ...
  4. European Financial Stability Facility - EFSF

    An organization created by the European Union to provide assistance ...
  5. European Monetary System - EMS

    A 1979 arrangement between several European countries which links ...
  6. Economic Conditions

    The state of the economy in a country or region. Economic conditions ...
RELATED FAQS
  1. What is QE3 (quantitative easing)?

    "Quantitative easing" refers to steps that the U.S. Federal Reserve takes in attempting to boost the country's lagging economy. ... Read Answer >>
  2. Why is the U.S. stock market doing well despite the recent U.S. economic downturn?

    The U.S. economy is one of the largest and most important economies of the world. With the continual growth of its GDP, the ... Read Answer >>
  3. What impact does quantitative easing have on consumers in the U.S.?

    Dig deeper into the Federal Reserve's quantitative easing policies and what potential impacts they may have on American consumers. Read Answer >>
  4. What developed countries have the greatest exposure to the automotive sector?

    Learn about the developed countries that have the greatest exposure to the automotive sector, Germany and Japan, which have ... Read Answer >>
  5. What currency is affected by the interest rate decisions of the Bank of England (BoE)? ...

    The Bank of England (BoE) is responsible for the interest rate decisions that affect the economy of Great Britain. As with ... Read Answer >>
  6. How does quantitative easing in the U.S. affect global markets?

    See how the Federal Reserve's quantitative easing can manipulate markets in the U.S. and globally in ways that are difficult ... Read Answer >>

You May Also Like

Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center