Argument That QE2 Helps Greenback And Should Hurt Gold

It's a tough case to make, but Ousmène Mandeng tries by tying QE in with the recovery trade. As passed along by Conrad de Anelle, Mandeng's argument is that QE is helping to push the stock market up: that brings money for U.S. equities in from foreign lands and helps stabilize the greenback.

Some emerging markets policymakers and others have been protesting repeatedly that the U.S. Federal Reserve’s policy of quantitative easing (QE) - or credit easing - causes a weaker dollar and channels unwanted hot money flows into emerging markets. Actually, the opposite may be true. On the one hand, issuance of dollar liquidity due to substantial securities purchases by the Fed should weaken the dollar, all else being equal. On the other hand, the explicit price support provided by the security purchases should support the dollar. Whatever effect dominates will determine to a large extent the dollar’s external value. The limited monetary expansion to date suggests that the effect of securities purchases is likely to dominate. Hence, QE seems dollar supportive.”

It's a bit of a stretch, given that QE2 has already pushed down the greenback. But, that's his take. He does have a point with regard to the recovery trade, for now.