things are getting worse at a slower pace

Foreign Exchange - Currency Outlook

Good economic data, universal expectations of recovery starting this year, and institutional change occurring without street riots are all favorable but in the new perverse world of risk-appetite driven exchange rates, "should" be causing the US Dollar Rate to fall. And yet the us dollar exchange rates has closed up on 8 of the past 15 days for a net gain of about 200 points over that two-week period. Wait a minute. This is backwards. The dollar exchange rates should be falling on good US news as the need for risk aversion abates. One explanation is that commodities in general and oil in particular look like a top is in, for the moment, so that if we get another surge in the uptrend, it will be more modest. This reduces dollar selling but doesn’t offer support for dollar buying.

As stated in the Summary section, we have a pretty good grip on the economics - things are getting worse at a slower pace and Bernanke was right, we do see some green shoots here and there. The only really big issue on the economic front is whether deflation should be a worry, but for the moment, deflation-deniers are holding their line and inflation fear-mongers, apart from the perpetual lunatic fringe, are quiet.

The real action and the real thought-provocation is coming from the institutional side. The BBA, for all its 19th century faults, is fostering greater transparency in the money market. Switzerland is leading the way on addressing "too big to fail." Europe is failing to achieve regulatory coherence, let alone excellence, revealing its fatal flaw as a potential reserve currency issuer. China is putting more eggs in the US basket and the US is at almost no risk of a ratings downgrade. The US president may be contemplating regulating the oil market and squashing the destructive speculation that has doubled the price of oil in just a few months, threatening the global economy.

Wow!

These are really big developments. The next chapter is the Fed meeting and everyone will be glued to the TV next Wednesday at 2:15 pm ET to hear whether the Fed is changing anything.

We guess it will not, and will issue a cautiously optimistic outlook.

On the whole, aside from some hot spots like Iran and N. Korea, things are actually looking pretty good, or at least better than they have looked in a long time. Don’t laugh, but in the New York region we have sunshine this morning for the first time in over a week, too. It has rained so hard for the past week that you can almost see the grass grow. If we were a gambling lady, we’d place a bet on the US stock market rising this morning, which should be US dollar-negative, of course. But more rain is forecast, so we can't predict anything about this afternoon going into the close. Again we counsel "just say no" to taking a position in the Foreign Exchange market, unles you can stick to the screen and keep your trade to under 30 minutes.

Pounds to US Dollars = 1.5512
Pounds to Euros = 1.1805
Euro to Pounds = 0.8465
Pounds to Australian Dollars = 2.0400

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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