Currency Market Updates | The Federal Reserve Posts No Surprises on Rates ……

The Federal Reserve Posts No Surprises on Rates ……

The Federal Reserve Posts No Surprises on Rates ……

… but with a target Fed Funds Rate ( the rate at which The US major Banks are able to borrow overnight Dollars) already at a 0 – 0.25% level, further cuts are nigh on impossible. Attention therefore was firmly fixed on any mention of more innovative easing initiatives and also the mood of the accompanying statement. The Fed did not specifically announce a programme of longer term asset buying as part of a shift towards quantitative easing but just confirmed that the current low levels of interest rates were going to be with us for some time to come. Their prognosis for the economy therefore remains every downbeat with little sign yet of any move towards recovery.

Market opinion therefore is that the previously discussed plan to create an entity to buy a lot of the toxic assets held by US Banks will gather momentum and as long as the Price Is Right, this should free up additional cash for those Banks to lend on to the Corporate Sector. Still a lot of work to be done here ….. One piece of good news out overnight was that the $ 800 billion stimulus package cleared the first hurdle (Congress) on its tortuous route to becoming a real injection. The dark cloud was that not one Republican member voted in favour. It looks as though Obama is going to have a real battle if he is determined to have these measures approved across the political spectrum. The Dollar and Wall Street however both took heart with the currency making strong gains across the board. Today sees the auction of $ 30 billion of 5-year notes – a massive amount but it will be vital for the rest of the programme that the sale goes well.

The headlines in all the major UK papers this morning focus on the IMF report that they see the UK economy suffering the most severe economic contraction during the current recession amongst all the major global countries. This really just ties in with previous reports / announcements from the institution and has not caused any additional damage to Sterling. It does however focus attention on a speech being delivered later this afternoon in Nottingham by MPC member, Blanchflower. I have no details on the proposed content but the arch-dove of the committee has recently been quoted in the press still calling for an immediate shift in UK rates to zero. This type of headline in tomorrow’s papers might affect Sterling’s value in the thin Far East trade especially given its recent strengthening.

Countrywide protests are expected in France today as Unions’ demands for a better response from the Government to the domestic economic situation are reinforced by widespread strike action.

Other Central Bank action: Reserve Bank of NZ cut their official rates by a further 1.5% down to 3.5% in response to current global pressures on the New Zealand economy and citing the continued abating of inflationary pressures. The market feels that there are more cuts to come with a likely corresponding weakening in the Dollar. The Swedish Central Bank (Riksbank) Deputy Governor reiterated that they are not at the present time considering any form of quantitative easing but will persist with the policy of continuing to make large cuts in Krone interest rates.

Gold has peaked at just over $910, seemingly on the call for Germany to fund their own economic recovery via the sale of some of their gold reserves. the small retracement also coincides with the slightly firmer Dollar. A continuation of the latter will likely see gold ease back further towards the $850 level.

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Currencies Direct & Forex trading

Currencies Direct &

Forex trading

Edward Kirwan, BSc Hons, is an independent professional Investment Portfolio

Consultant working with Currencies

Direct and is based in Spain. Working with overseas property investments,

currency trade, corporate foreign exchange, international payments and transfer payments

overseas are all an important elements of this business.

Contact Edward Kirwan by e-mail: enquiries@invest-in-overseas-proper

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