The most anticipated event of the week continues to buoy markets and the U.S. dollar continues to weaken as investors await the Federal Reserve meeting which is due to take place over the next two days. The Dollar fell against all of its major trading counterparts as the German Constitutional Court announced that it would rule on the legality of the European Stability Mechanism and that there would be no delay in the timing of the decision which is due tomorrow. The decision is vital for the participation of Germany in the activities of EUR 500 million European rescue fund. Meanwhile, Greek politicians met as the deadlock over spending cuts continues. The euro has gained overnight to trade this morning at 1.2850.
The Federal Open Market Committee will start a two day meeting as speculation mounts that it will announce a third round of asset purchases. On August 31, Fed Chairman Ben Bernanke had said that he has “grave concerns” about the weak labour market in the U.S. The weaker than expected employment data released in the U.S. last week have only reinforced these concerns. In more bad news for the world's largest economy, Moody's Investors Service has indicated that it may follow Standard & Poor's and downgrade the credit rating of the United States unless Congress acts to reduce the debt to GDP ratio in budget negotiations due next year. A double dip recession is extremely likely if politicians cannot avoid the scenario now known as the “fiscal cliff”. The Australian dollar has powered ahead to trade above 1.0425 this morning.
U.S. share markets have gained as expectations of further stimulus from the Federal Reserve continue to build. Small business confidence gained for the first time in four months in August as more companies anticipated an increase in sales and hiring according to the National Federation of Independent Business' optimism index. Bank of America, Alcoa and Hewlett Packard recorded gains of more than 2% as the S&P 500 gained 0.31% to close at 1,433.56. Earlier in Europe, the DAX gained 1.34% while France's CAC gained 0.9%.
Commodities continue to rise in the prelude to the next FOMC meeting with the CRB index gaining 1.66 points to 314.90. Crude oil advanced on a weaker U.S. dollar and stimulus speculation. WTI has gained 0.5% to $97.00. Precious metals continue to consolidate near their highs this week with gold gaining 0.2% to $1,735 while silver is down 0.5% to $33.45. Soft commodities were mixed with coffee gaining while cocoa fell. Copper is largely unchanged.