Currency report 22 Dec – episode 51By james tweed • Dec 23rd, 2008 • Category: Currency
This report is not available as a podcast this week…
We have the text for you instead and normal, audio service will resume after the holidays.
The USD tumbled this week to 3 month lows against the Euro as the Fed cut interest rates to virtually zero after its meeting this week – the lowest they have been since 1954.
The new target range for the Fed was zero to 0.25%, and will be coupled with employing all available tools to promote the resumption of sustainable economic growth. The USD is no longer a particularly attractive risk aversion strategy when interest rates are so low, especially if you can get a 2.5% return in Euros.
Poor economic data also dragged the USD down; industrial production shrank by 0.6% in November.
The bail out of the big 3 car manufacturers is in limbo as the three firms have to prove in the next 3 months that they are viable businesses in the long term and that a Fed bail out will not be chucking USD down the drain. Don’t hold your breath, this is a hospital pass of massive proportions. Bush doesn’t want to make the decision on his watch, so has deferred it until Obama’s. It’s a tough call, give them the funds and watch as its wasted away or don’t and watch your voters leave you in their millions.
Sterling took a massive tumble this week, nearly reaching parity with the EURO when the minutes of last BOE MPC meeting were released. (If you purchased cash Euros at Heathrow on Friday you got just 90 Euro cents for your £1.00)
The minutes revealed policy makers had considered even deeper cuts than the 1% they actually made. This has lent support to the argument that we might follow the US and cut rates to almost zero and then adopt a quantitative easing approach – in simple terms, print more cash and hand it out in an attempt to boost the economy.
One thing everyone is settled on – we are not even in the woods yet, so that we might look forward to getting out of them!
Key market data for Dec 8 to Dec 12
USD vs Mon opening Fri closing Trend
EUR/USD 1.3446 1.3862 Weaker $
USD/CHF 1.1727 1.1105 Weaker $
USD/JPY 90.63 89.56 Weaker $
Gold 826.40 835.85 Up 1.2 %
Oil 42.72 39.79 Down 6.8%
GBP vs Mon opening Fri closing Trend
GBP/USD 1.5038 1.4876 Weaker £
GBP/EUR 1.1179 1.0727 Weaker £
GBP/CHF 1.7626 1.6521 Weaker £
GBP/JPY 136.33 133.26 Weaker £
Current Interest Rates Latest Change Next Meeting
US Federal Reserve (FED) 1.00% 29 Oct 08 16 Dec 08
European Central Bank (ECB) 2.50% 4 Dec 08 8 Jan 08
Bank of England (BoE) 2.00% 4 Dec 08 8 Jan 08