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FX Day Trading - 21 September 2011
Bunny boiled
Some central banks have things under control
Some don't
A pet rabbit has been credited with saving its owners from a house fire in south-eastern Alaska by scratching on the homeowner’s chest. Realising that the house was full of smoke, she woke up her daughter and fled. The fire was brought under control fairly quickly, with four engines, a ladder truck and 33 firefighters responding.
While there were no injuries to the mother or daughter, the rabbit was not so lucky; it succumbed to smoke inhalation and did not survive. No good deed goes unpunished, as they say.
With the ratings agencies trying their utmost to make amends for their role in the credit crunch by bringing about a new financial crisis, and political leaders on both sides of the Atlantic dithering, it has fallen on the central banks to be brave little bunnies and save their owners from the burning building.
The minutes from the most recent Reserve Bank of Australia meeting suggest they have things under control, while the Bank of Canada is similarly well positioned to save the day; but not all are so fortunate.
Europe’s leaders remain stubbornly asleep despite the flames flickering at their feet in the form of an S&P downgrade of Italian debt earlier this week, and the Bank of Japan has very little room to manoeuvre.
In the UK, the government is at least awake and aware there is a problem, but the Bank of England is still being called upon to help save the UK economy. More quantitative easing (QE) is expected, although there is no universal agreement that this will solve the problem of flagging economic growth, given most of the rest of the world is suffering from the same problem.
In FX spread betting, the pound took a beating in the build-up to this month’s Bank of England interest rate meeting, as spread betting investors anticipate QE expansion.
This morning the minutes of the meeting are released, shedding light on whether or not anyone joined Adam Posen in voting for more QE.
Goldman Sachs and Citigroup both predict an expansion of the ‘asset buying’ programme in the coming months. If the minutes of the meeting suggest they are right, the pound may well find itself under pressure again.
The Federal Reserve has arguably the hardest task.
President Obama is lurching from compromise to confrontation on measures to address the deficit in the US, but in reality he lacks the power to push through any meaningful measures.
Meanwhile, the Federal Reserve has been left to put out the fire by boosting growth and addressing unemployment. As discussed yesterday, the US Federal Open Markets Committee (FOMC) is expected to announce further monetary easing tonight in the form of ‘Operation Twist’.
This will involve short-term treasuries replaced with longer-term bonds in a move designed to appease demands from the markets for easier monetary policy without provoking the hawks on the FOMC.
Unlike the Bank of England or the ECB, the Fed does not have an inflation target. It instead has a mandate for full employment. With unemployment currently running at 9.1%, ‘Operation Twist’ is not expected to make much of a dent, with a significant proportion of economists warning it could actually do more harm than good.
Either way, it is a half-way measure and is unlikely to solve any of the main problems. If there are no surprises, the dollar will likely be largely unaffected, but more-decisive action from the Fed should weaken the greenback.
Data yesterday had little effect on the currency markets. German investor confidence fell to the lowest in more than 36 months in September as Europe’s debt crisis and a global slowdown damped the outlook for growth.
The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to -43.3 from -37.6 in August, the lowest since December 2008.
US building permits matched expectations, while data from Canada was mixed with wholesale sales on target and a leading index slightly lower than forecast.
Away from central bank events, today’s main highlights will be the latest UK Public Sector Net Borrowing (deficit) figures, Canadian inflation and existing home sales from the US. There is plenty of scope for volatility today, so try not to get your fingers burnt.
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 Takes a Beating in FX Spread Betting Markets on QE Speculation', Article by Moneycorp, last update: 21-Sep-11
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