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FX Day Trading - 10 August 2011
Two more years of low US interest rates
But no QE3
BoE Inflation Report today
Arguably, strong action is needed in Euroland to counteract the potential disassembly of the single currency.
European Central Bank president Jean-Claude Trichet certainly thinks so. After two days of intervention to support Spanish and Italian bonds he said on Tuesday that "What we need is for governments to do what we consider to be their job" and "What we ask is that all the decisions taken on 21 July are put into effect as quickly as possible”.
His unspoken message was that, with reserves of around €500 billion, the ECB does not have the resources to soak up €1.5 trillion of Italian government bonds.
At the same time, across the Pond, the Federal Open Market Committee was debating what to do with US monetary policy to counteract the threat of a double-dip recession.
The FOMC said in its statement; "The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability".
It did not specify what those tools might be but it is fair to assume that one of them is an extension of the quantitative easing programmes in which the Fed bought some $2.3 trillion of Treasury and other bonds.
In the end the FOMC decided to make a strong statement on interest rates. The committee said it was likely that the funds rate would stay at its current level "at least through mid-2013". The unprecedented two-year commitment shows how nervous the Fed has become.
M Trichet's statement had no impact on the euro, probably because investors see not the remotest chance that EU leaders will interrupt their summer holidays with anything as grubby as "doing their job".
The FOMC statement, however, did get things moving. The US dollar Spreads moved lower across the board, on the prospect of another two years of minimal returns, while commodity-oriented currencies strengthened as a double-dip recession became a little less likely.
There has been a rethink of that reaction overnight and there could be another one when the FTSE gets going.
A wider UK trade gap and weak manufacturing and industrial production data had little direct impact on the pound but contributed to the negative sentiment engendered by the riots.
There could be more of that today after the governor's Q&A on the Bank of England's Quarterly Inflation Report. It is likely that the Bank has become even more dovish in its inflation expectations.
That, together with projections for continued slow growth, could persuade indices spread betting investors to look for another round of quantitative easing in Britain. Whilst that would be positive for equity prices, it would be bad for the pound.
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.
'US Dollar Spreads Drop as Fed Commits to Low Interest Rates Until 2013', Article by Moneycorp, last update: 10-Aug-11
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