Currency Traders Worried How Low Global Interest Rates Can Go?

If you are a currency trader, you should always keep an eye on the global interest rate plus the unemployment rate in the big economies like US and EURO zone if they are trading EUR/USD or GBP/USD. FED is under pressure to increase the interest rates as the economic data for the past few months is indicating a strong economic recovery. With strong economic recovery, inflation will kick in and FED will have to increase the interest rates just to cool down the economy. EURO zone is facing problems of low inflation. ECB is trying hard to fight this low inflation. It has started it’s own Quantitative Easing program designed to ward off the recessionary pressure that is building on the big economies in Europe.

While speculation is rampant that the ECB could tweak a new lending program for banks next week, there is some chatter that it could propose QE, or quantitative easing at the end of the year or next year. But there are also many investors who believe it would be difficult for the ECB to launch a program to buy sovereigns, similar to QE in the U.S.

“The short end is being driven by the economy and the long end is being driven by the global yield play, and the lack of available product,” said Northern Trust chief investment strategist Jim McDonald. “I don’t think it’s an economic indicator. I think it’s a matter of supply in the market.”