AUDIO: Welcome to Crisis 2.0

With all proxies for risk appetite at or below summer 2010, a third round of quantitative easing is inevitable, says Saxo Bank

Nick Beecroft, senior markets consultant at Saxo Bank in London, says a third round of quantitative easing (QE3) is inevitable as proxies for risk appetite hover at levels not seen since mid-2010.

In this free audio cast, Beecroft discusses the factors that will provoke the US Fed to administer QE3, and the implications for currency traders.

"In many ways we could be said to be in a crisis, with equity markets just about entering bear market mode - 20% down in many cases," says Beecroft. "We are seeing extreme stress in many markets as commonly used proxies for risk appetite are floating at levels not seen since last summer. That, combined with macroeconomic developments at the time, was just about enough to provoke the Fed to announce QE2."

Beecroft says that, while markets are healthier than they were in the shock following the Lehman Brothers' bankruptcy, policy-makers and central banks could be said to have a playbook of what to do. "The problem is that the fiscal cupboard is somewhat bare. All of the brunt of the stimulation is going to have to come from monetary policy, which means QE3 is eventually going to be the outcome," he says.

Beecroft predicts that, when it happens, pro-cyclical currencies will bounce and the US dollar will be weaker, "but it will be a case of diminishing returns and a cycle of QE-infinite".

Click here to find out what will provoke QE3 and how to position for it.