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US Dollar pulled back from record lows last week. Currency report Oct 25

By • Oct 25th, 2010 • Category: Currency

The Coracle Online Currency podcast for Oct 25, 2010 in association with Crossbar fx

The US Dollar pulled back from record lows last week as recent selling pressure on the currency dwindled. It had dropped to its lowest level this year earlier this month as the prospect of further quantitative easing by the Fed weighed on the currency. Then the Chinese raised interest rates, which took the market by surprise, and meant that commodity prices dropped and the Dollar gained some strength as the markets interpreted the Chinese move as a form of cooling the rate of growth and hence holders of commodity based currencies dived for the cover of the Dollar. The US deficit fell last month to 8.9% of GDP, and is currently $122 billion less than 2009 levels…but that’s still the 2nd highest since the Second World War. What is astounding currency traders is the strength of the Euro which gained again this week. Why? Wasn’t it only a month ago that the PIGS were going to fail and default on sovereign debt payments? The only explanation is they do not talk of more QE; that and the Euro has become the beneficiary for those selling the Dollar. Is next week the point when it all turns round and the Dollar passes the ‘ugly baton’ onto the Euro, the Pound or the Yen?
Here in the UK the Chancellor announced his austerity measures – and so far there are no riots in the streets! The MPC had a 3 way split, the latest minutes show – 7 no’s and 1 yes for a rate rise, and 1 for more QE. So the idea of QE is gathering momentum – unlike the economy. Factory orders dropped at their sharpest rate in October since April, and Public Sector borrowing rose to £16.2 billion in September, compared to the £14.8 billion borrowed in the same month last year. It’s going to be a key few weeks as the cuts are digested and the pain begins to register.