Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook
The euro exchange rate closed yesterday just under the magic round number at 1.4991 after hitting the high at 1.5021 before the US open, suggesting US traders were slow to jump on the bandwagon. The best euro rate made a new high at 1.5050, again overnight, on good data from Japan and China and despite a strong dollar policy statement in Tokyo from Treas Sec Geithner.
The change in attitude toward gold is interesting. You can’t follow currencies without knowing something about gold, and the only time when it was not dominated by ideologues and true believers was the run-up to over $800 in 1979 and 1980. Speculators joined the party then and are joining it again now, although this time gold is "just another commodity." According ot the FT, spot gold prices rose as high as $1117 before falling back.
Another curious development is in Pounds sterling exchange rates, which fell from 1.6754 to 1.6599 in a single hour yesterday on the news that Fitch sees the UK as potentially facing a sovcereign ratings downgrade (but probably escaping that fate upon fixing the deficit after the spring election). Pound to us dollars recovered yesterday after that shock and rose steadily, spiking to a level higher than the pre-Fitch level at 1.6799. But then it put in a giant downmove, again in a single hour, to 1.6625. Find an hourly chart if you can. Seldom can we see so clearly when a gang of foreign exchange traders is out gunning for sterling.
But the news from the UK is mixed. Job losses were less than expected, which was sterling-favorable. The Bank of England’s Quarterly Inflation Report said the CPI will average about 1.6% for the next two years, interpreted as meaning the Bank will keep rates on hold all year next year - and sterling-negative. But near-term, the BoE inflation forecast is for a possible pop over target. By now the market was weary of lobbing balls back and forth, and then Gov King spoke about 27 topics, among which was the observation that a weak currency has been of benefit to the economy, and that was the only thing the market heard.
Bye for Now
Barbara Rockefeller
Foreign Exchange Trading
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