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FX Day Trading - 22 September 2011
Compromise makes a good umbrella, but a poor roof
On this day seven score and nine years ago, US President Abraham Lincoln issued his first emancipation proclamation, marking a sea-change in the country's political and demographic fabric.
His actions were entwined with and heavily influenced by the realities of the ongoing civil war, and perhaps the gravity and scale of his decision did not fully transpire until many decades later. Politics is all about compromise and often the right decisions are not recognised as such until the passing of time affords sufficient perspective.
The modern day role of central bank governor requires its own degree of politics, with most central banks taking decisions by committee and under considerable scrutiny from within and without.
Will the passage of time ultimately show that ‘Operation Twist 2’ solved the financial crisis and rescued America and the world from a further financial crisis? In short, no.
The Federal Reserve will extend the average maturities of the Treasuries in its portfolio by purchasing $400 billion of long-term debt, while selling an equal amount of short-term debt.
The idea is that this will drive down the cost of long-term borrowing, which for the man on the street means lower mortgage repayments. This is intended to put more money in people’s pockets, encouraging them to spend and so stimulating economic growth.
The more optimistic assessments believe the measure could result in a modest 0.2% growth in GDP, others feel it will make very little difference at all. Almost nobody believes it will be the ultimate solution.
With inaction likely to be taken badly by the financial spread betting markets, Fed Chairman Bernanke had to do something, but could not go as far as expanding the quantitative easing programme for fear of driving up inflation.
Like Lincoln he will also need to garner more widespread support for the move as three members of the committee are staunchly opposed to any more stimulus. Last night’s move was a first step, but more will likely follow.
The minutes of the Bank of England’s Monetary Policy Committee provided few surprises and even fewer rays of sunshine as the nine members said that the decision to hold off adding stimulus to the economy through quantitative easing (QE) was ‘finely balanced’.
Most policymakers said it was "increasingly probable that further asset purchases to loosen monetary policy conditions would become warranted at some point".
Although the voting pattern remained unchanged from August, the minutes have a significantly more dovish tone with many analysts now predicting a November increase in QE. Predictably, the pound was sold off on the news in the FX spread betting markets.
Away from the central bank decisions, yesterday offered precious little to earn its place in the annals of history. The UK government borrowed more than expected in August, although July’s surplus was also revised higher, balancing the effect on sterling.
Canadian inflation was higher at 0.3% (0.1% predicted) and sales of existing US homes (as opposed to new builds) were also higher than expected at an annualised 5.03 million.
Overnight, New Zealand announced its gross domestic product was a meagre 0.1% against an expected 0.5%.
Another notable historical event on today's date includes the 1955 launch of the first independent TV channel in the UK – the Independent Television Authority – funded by adverts rather than licence fees.
The launch of the channel prompted fears of a slide into lower-standard, populist programming, and it's a shame no-one listened.
It's unlikely that today will be known in the future for any foreign-exchange related watersheds.
Scant highlights include flash estimates of European purchasing managers’ indexes for September, UK industrial order expectations and US weekly jobless claims. None of these are likely to have much bearing on the already volatile currency spread betting markets, but wider events are holding sway.
Currency Trading and Spread Betting carry a high level of risk to your capital and you can lose more than your initial investment, they may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'Pound Sold Off in FX Spread Betting on Dovish BoE Minutes', Article by Moneycorp, last update: 22-Sep-11
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