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FX Day Trading - 11 August 2011
Unrest persists
SNB tries to depress the franc
France downgrade rumours depress the euro
The sociologists are wringing their hands, unable to explain the rapid spread of disturbance and destruction.
Politicians either blame it on each other or on a system that encourages a money-for-nothing sense of entitlement. Those involved in the turbulence say it is the fault of the authorities for failing to provide leadership while creating a climate of fear through over-zealous policing.
Whatever the cause, and despite the relative calm last night, few analysts are yet ready to say the storm has passed.
Neither the riots nor the turmoil in financial markets make any sense. To blame them on spending cuts, boredom, poor discipline, loss of hope or whatever is to miss the point that they are irrational.
It is not the free telly or the year-end bonus that counts; it is more a matter of going with the flow, being part of the "in" crowd and not looking soft in front of your mates. Before long both crazes will run out of steam, not through the use of water cannon or central bank intervention but because the mob has lost interest and moved on to a new fad.
That does not prevent the authorities from getting involved. After all, if they are not seen to be doing something they will be castigated by the media. So water cannon and baton rounds are on the menu for English looters, intervention and quantitative easing are lined up to deal with the financial bears.
The Swiss National Bank was out with the vigilantes yesterday, desperate to protect its country's economy from an overvalued currency. In just a month the franc has strengthened by 14% and on Tuesday evening came within 1% of parity with the euro.
Having been burnt in the past after intervening to sell its currency, the SNB this time said it would use FX swaps to increase the supply of francs and “if necessary, it will take further measures against the strength of the Swiss Franc."
It is worth noting here that the Bank of Japan has been very quiet since it intervened a week ago to sell around ¥4 trillion (c.£32 billion). The intervention knocked nearly 4% off the yen's value, all of which - and more - it has regained in the subsequent seven days.
An overvalued pound is not a major concern for the Bank of England. At Wednesday's press conference to introduce the quarterly Inflation Bulletin the governor was more worried about the pace of growth and about how it depends on external influences.
As a precautionary measure, just in case FX spread betting investors might mistakenly believe the pound to be undervalued, he chucked in a couple of references to quantitative easing.
The pound was briefly rattled but managed to achieve a positive day against all but the US dollar. The dollar's success came about as a result of the euro's failure after rumours spread about Societe Generale being in trouble and France losing its triple-A credit rating.
What do we want?
Confidence!
When do we want it?
Now!
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'Euro Weakened by Rumours Over Fiscal Health of Societe Generale', Article by Moneycorp, last update: 11-Aug-11
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