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FX Update: European Outlook

Posted:02/12/2008 8:28 by Peter Burnside
The iron grip of recession and Fed Bernanke's signal that unconventional policies may be adopted to aide an economy under "considerable stress," has and should continue to keep the safe haven theme alive in FX and other markets. Bernanke's hint that the Fed could purchase Treasuries should only strengthen the prevailing safe haven status of US government paper, which is a situation likely to remain as long as America's sovereign ratings don't come under jeopardy. The CNY has come under the spotlight, as the currency has weakened notably in hitting the bottom of its trading band for the second day in a row, suggesting Beijing is shifting FX policy to allow moderate currency depreciation. Given the rapid cooling in the Chinese economy and recent monetary easing measures, this does not surprise, especially at a time when other Asian central banks are struggling to defend their currencies (interventions were seen in the INR, KRW and PHP today). Eastern European and other emerging market currencies may come under fresh pressure. GBP remains vulnerable; the latest poll on BOE policy expectations, showed a majority now favour a 100bp rate cut on Thursday. click here to return to the top of the page
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