FT attributes the fall of the dollar index today, to the worries of the ending of bond purchases by the Federal Reserve.
In an article published today by the WSJ, they also explain the jitters of the market.
"The big question worrying investors today is how markets will react when the Federal Reserve starts trimming its stimulus program, something that could happen as soon as this year.
The first time the Fed pared stimulus, in March 2010, the Dow Jones Industrial Average responded with a 14% drop between April and July. The second time the Fed pulled stimulus back, in June 2011, the Dow moved in anticipation, slumping 17% from April into October.
Some analysts think the softness means the Fed will give up on withdrawing stimulus for the foreseeable future. But so far, the Fed is still signaling a desire to start cutting stimulus at some point.
Part of the problem the Fed faces is that it never before has tried to carry out this massive a stimulus program for such a long period. The Fed’s role in markets is, in that sense, greater than ever before, meaning markets are more dependent on the Fed than ever before. Because of that, and because the economy is so fragile, the current period truly is an exceptional one, in some ways more like the 1930s than the 1990s.
Many analysts now are trying to predict the market’s future based on what happened after Fed actions in the past 30 years. A better reference point might be the Depression, or Japan’s two recent lost decades.
Mr. Bernanke’s challenge is to move the Fed back to a more normal role in financial markets and the economy, while avoiding the disastrous errors of 1936 and 1937. One problem he will face is that markets aren’t likely to applaud cutbacks in Fed assistance".
In an article published today by the WSJ, they also explain the jitters of the market.
"The big question worrying investors today is how markets will react when the Federal Reserve starts trimming its stimulus program, something that could happen as soon as this year.
The first time the Fed pared stimulus, in March 2010, the Dow Jones Industrial Average responded with a 14% drop between April and July. The second time the Fed pulled stimulus back, in June 2011, the Dow moved in anticipation, slumping 17% from April into October.
Some analysts think the softness means the Fed will give up on withdrawing stimulus for the foreseeable future. But so far, the Fed is still signaling a desire to start cutting stimulus at some point.
Part of the problem the Fed faces is that it never before has tried to carry out this massive a stimulus program for such a long period. The Fed’s role in markets is, in that sense, greater than ever before, meaning markets are more dependent on the Fed than ever before. Because of that, and because the economy is so fragile, the current period truly is an exceptional one, in some ways more like the 1930s than the 1990s.
Many analysts now are trying to predict the market’s future based on what happened after Fed actions in the past 30 years. A better reference point might be the Depression, or Japan’s two recent lost decades.
Mr. Bernanke’s challenge is to move the Fed back to a more normal role in financial markets and the economy, while avoiding the disastrous errors of 1936 and 1937. One problem he will face is that markets aren’t likely to applaud cutbacks in Fed assistance".
