Sterling Against The US Dollar

  • 17 years ago
  • Uncategorized
London 15th October 2007-Sterling explored a range of almost two and a quarter cents, first dropping to $2.0250 then rising to $2.0475 before falling back to Tuesday’s low. On Friday it added a cent to open this week 50 ticks lower than a week ago.
Japanese, Canadian and US holidays made for a thin market last Monday. It set the tone for a week of indecisiveness that included several changes of direction for Sterling/Dollar. With little economic news to provide inspiration investors spent their time reanalysing the recent data and coming to new conclusions about where economies and interest rates were headed.
There were two events on Tuesday that contributed to this reassessment. In Washington the Federal Open Market Committee published the minutes of its September meeting. The minutes revealed a unanimous decision to cut rates by 50 basis points last month. After a lot of ifs and ah-yes-buts the committee “agreed that… the 50 basis point easing in policy should help to promote moderate growth over time.” In other words, “we think 50bp will be enough to be going on with.” From the minutes and from other data during the week the market inferred that a US rate cut on 31 October is no longer an odds-on outcome.
By a similar token, comments by the Governor of the Bank of England implied that there was equally little certainty about lower base rates next month. Dr King gave a speech in Belfast during which he made two points. Northern Rock was not his fault and he is not going to offer cheap money to banks just because they want it. Using the fire brigade analogy, the Bank will put out a financial fire that threatens to spread but “fire services do not offer free insurance for people who smoke in bed or set fire to their own house.” As for monetary policy, “you can be sure that we will do whatever is necessary to keep inflation close to the 2% target.”
By attempting to clarify policy the FOMC and the Bank have succeeded only in obscuring what was previously thought to be a clear view of the future. Although there is still a feeling that the Dollar will weaken further as time goes by, the gyrations of Cable over the week demonstrate just how uncertain investors have become. Sterling is half a cent further away from its long term highs than it was a week ago, nevertheless the advice remains the same: Buyers of the Dollar should be hedging their exposure and buying at least half of them forward.
Source Moneycorp
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