Ratings agencies downgrade the banks. Are these times as bad as the 1930’s? Currency report 10 OctBy james tweed • Oct 11th, 2011 • Category: Currency
Significant items this week:
Tues 11th Oct UK – Industrial production, Trade Balance
US – FOMC minutes of the last meeting
Wed 12th Oct UK – Unemployment
Thurs 13th Oct EU – German CPI
US – Trade Balance
Fri 14th Oct US – Retail sales
Thank you for downloading the foreign exchange market report podcast from Coracle Online and Crossbar fx for October 10th 2011.
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The US Dollar weakened on Friday following the announcement of the Non- farm payrolls employment report, which showed that more jobs were created than expected in September. The Pound and the Euro rose sharply after the data showed that 103,000 new vacancies were filled in September. August data was revised upwards to 57,000 from zero. During the last week, markets were a turbulent affair. In the beginning the markets focussed on Greek default fears and slowing global growth; by the end of the week we saw some surprise central bank action. The Bank of England M.P.C. announced that they were introducing another round of Quantitative Easing – to the tune of £75bn, taking the asset purchase program to a total of £275bn. Meanwhile the ECB announced a 40 billion Euro “covered bonds” scheme and two separate long-term liquidity operations. Usually such central bank intervention would have a negative effect on their respective currencies, but conversely it boosted risk appetite and meant that Dollar weakened whilst other asset classes rose. There is also added speculation that the Fed may be preparing to announce another round of QE themselves.
European leaders are locked in negotiations regarding the recapitalisation of the continents banking system. The ratings agencies have downgraded Spanish and Italian debts, and in the UK they downgraded 12 banks’ credit scores.They think that these institutions are now unlikely to be given a lifeline along the lines of the one’s given to Lloyds TSB and RBS. One thing is for sure – QE is one big monetary experiment and no one really knows what will happen or where the money will go. Overshadowing these QE injections is uncertainty surrounding the Eurozone crisis, and global growth fears of a double dip. It didn’t help when the Governor of the Bank of England suggested after the announcement on Thursday that these times could be as bad, if not worse, than the depression in the 1930’s. The only constant that you can be sure on is that volatility will continue and huge swings in exchange rates will remain while Central Bankers gradually leak the reality that we are a long way from sorting this mess out.
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