Pound Sterling Plunges Against the Yen
by: cordieliea | Total views: 116 | Word Count: 1657 | View PDF | Print View
wasn’t just the Dollar that took a beating last Friday as the British
pound fell sharply against the Yen, Euro, Swiss Franc and even the
Greenback itself. The fall was all the more telling given the general
mauling the dollar took last week against a whole host of currencies.
Before Friday’s pullback the Dollar hit a 26 year low against Sterling.
were wary of holding ‘risky’ currencies as part of the carry trade
which involves borrowing from a low interest rate currency like the Yen
and investing in high yielding currencies like the Pound. The unwinding
of this carry trade could have repercussions for the global economy as
it is often used to finance international deals.
Dollar was hit by the announcement that China may spread its currency
reserves beyond the Greenback to currencies such as the Euro. On
Thursday Fed chairman Ben Bernanke spooked the markets by saying that
the US economy would ‘noticeably slow’ in the coming months, but at the
same time refused to signal that a rate cut was imminent. Institutional
traders ignored these signals and moved to price in another rate cut
very soon. Fed futures now imply a 94% chance of a rate cut by
December, up from 60% just one week ago.
Fed chairman Alan Greenspan was on record as saying that the Dollars
slide against the Euro was over and that the selling pressure will now
come from Asian currencies. Indeed ‘Dollar bashing’ has now reached
record levels with the Dollar index (a measure of the dollar against 6
major currencies) now just off a record low of 75.077. Research from
Bespoke investments shows that this Dollar bear market is now the
longest (2316 days) and most extreme (down 37%) on record.
4th largest bank in the US, Wachovia corp., announced it was going to
write down $1.1 Billion due to credit losses. This and Cisco’s earnings
‘miss’ were enough to cause equity markets to tumble towards the end of
the week. Even the tech kings such as Google, Apple and RIM
(Blackberry) were brought down from their stellar orbit.
In
the UK the FTSE and Sterling were hit hard on the news that the UK's
budget deficit is running at a record 6.9 Billion. Although this was
thought unlikely to influence MPC policy after a no change verdict on
rates last week, it did depress the markets when coupled with the
rumours about Barclays.
The
main financial institutions exposed to the credit crunch have come out
and revealed their losses. However, Barclays are yet to reveal the full
extend of their losses despite being one of the most exposed companies.
Barclays rejected rumours that it was about to write off $10bn, but
with the shares down 9% on the day at one stage, it is apparent that
not everyone believes them.
week is again data heavy. The US bond markets are closed on Monday for
Veterans Day, but the stock market is open. The week starts with
important data for sterling and the FTSE with PPI, CPI and RICS house
price balance data on Monday and Tuesday. There is no let up on
Wednesday with the release of average earnings data and the BOE
inflation report on. Consumer spending is the life blood of the US
economy so Wednesday’s retail sales data will have a heavy impact on
the market.
the amount of data next week and so much uncertainty in the markets,
about the only thing that is likely at this point is further
volatility. So far this year there have been 12 days with a 2% up or
down close on the FTSE, which is more than the previous three years
combined.
Therefore traders at BetOnMarkets.com predicts that a volatility trade may be the better option for next week. With an up or down trade you pick a
high and a low value for the index to hit. If it touches either you
win. An up or down trade on the FTSE 100 with the triggers set to 6100
and 6500 returns 13% over 10 days.
- THE END -
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IM1 2AG
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About the Author
Name: Mike Wright
Address:
Regent Markets (IOM) Limited
3rd Floor, 1-5 Church Street,
Douglas, Isle of Man IM1 2AG,
British Isles.
Phone: 448003762737
Email: editor@my.regentmarkets.com
URL: http://www.betonmarkets.com
or http://www.betonmarkets.co.uk
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