The U.S. dollar is trading lower against most of the major currencies this morning despite speculation by the Wall Street Journal that the Federal Reserve's second dose of Quantitative Easing will be a watered down version of the first. A less shocking version of QE should have been bullish for the U.S. dollar but there was little impact on the forex market as investors realized that additional stimulus regardless of the size and scope still makes the U.S. dollar unattractive. It also did not help that a former adviser to China's central bank said a U.S. dollar devaluation is inevitable. With "such a huge amount of debt" that is "worsening day by day," Yu Yongding believes that "we are one step nearer to a U.S. dollar crisis." Expect China to remain in the headlines over the next few days as the House is set to vote on the Currency Bill tomorrow that would allow for tariffs on Chinese goods. Meanwhile consumer confidence fell in the month of September to 48.5 from 53.2, the lowest level since February. The deterioration in sentiment should not be a complete surprise since the Conference Board's report echoes a drop seen last week in the UMich Consumer Sentiment survey. With unemployment at a 26 year high, confidence among consumers remain weak and this decline in sentiment will give the Fed a stronger reason to increase stimulus in November. House also prices declined 0.13 percent in July, pushing the annualized increase in down to 3.18 percent from 4.21 percent. The housing market has struggled to gain momentum after the expiration of the tax credit and July was a particularly difficult month. Yet last week's existing and new home sales reports showed a mild recovery in August. More QE for BoE Too? The one currency that is performing worse than the U.S. dollar this morning is the British pound. The Bank of England stole the limelight from the Fed in early NY trading when MPC member Posen called for further easing. Given the recent trend of weaker economic data, the BoE has alot to worry about. According to Posen, high unemployment and output gaps could lead to a sustained period of low growth. while inflation is expected to be well short of their target in 2012/2013. Since Posen believes that monetary policy should be aggressive in promoting recovery, he called for a proactive than reactive approach. Posen made it clear that he will be voting for more QE next week. His vote for additional easing is at odds with MPC member Sentance's vote for less stimulus. As a result we don't expect the BoE to announce additional QE next week because the growing dissent within the central bank will stymie any new policy actions. In all likelihood, the Fed is expected to announce additional easing before the BoE but this "surprise" announcement by Posen will mark a near term top in the British pound. In contrast, the euro is trading higher against the U.S. dollar and British pound after German Chancellor Merkel said the economic situation in Germany is "remarkably positive" "We have the chance for unemployment to get to around 3 million, maybe even slightly below." The German government is scheduled to release its new GDP forecast on October 21. Last week, Deputy Finance Minister Steffen Kampeter said Germany's economy is likely to grow more than double the amount forecasted back in April.

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