The ECB has seemingly rejected quantitative easing even if it were allowable under treaty

Foreign Exchange - Currency Outlook

Not to be a prude, but we disapprove of a government not only encouraging speculation in dodgy assets, but lending money - lots of money - for the purpose. Moralizing aside, the release of the PPIP marks the beginning of the end.

The equity market is not wrong.

The commodity markets are not wrong.

FIFO is alive and well… the US was the first to go into crisis and recession, and will be the first out. The implications for the US dollar are not yet clear. The US dollar rate can still tumble on the inflation/currency debasement conventional wisdom, or come back on the idea that “it’s worse elsewhere.”

The question remains of whether it really is worse elsewhere. On the whole, we think yes, it is. Europeans are downplaying both the financial sector problems and economic consequences, and to deny is to delay. ECB policy member Likkanen threw out a few drops of cold water, saying the ECB still has room for conventional monetary policy actions (translation—rate cuts) and if the slump gets worse, it can also introduce additional "innovative instruments." Translation - nobody knows. The ECB has seemingly rejected quantitative easing even if it were allowable under treaty, so we don’t know what innovation Likkanen may have in mind. But it’s clear that slow as the US Treasury was to get remedial action going, Europe is farther behind. This is the perennial structural difference between the US and Europe, and it accounts for perennially slower growth in Europe, if greater social stability. If the euro exchange rate is getting support from a relatively higher interest rate structure and that is about to be reduced to a tiny margin if not to zero, what is support for the euro rate, again? Thus there is a small glimmer that the US dollars rise may not be over, once this corrective bouncing is over.

Pounds to US Dollars = 1.4579
Pounds to Euros = 1.0790
Euro to Pounds = 0.9268
Pounds to Australian Dollars = 2.0907

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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