A couple of positive US manufacturing sentiment indices look like they boosted the US Dollar yesterday. It may look like that but the more likely reason for the US Dollar’s gain is the expectation of positive news from the US Federal Reserve which announces its interest rate and quantitative easing program tomorrow. Speculation over the suspected size of the rise in the US central bank’s program of bond purchases is increasing in the value of the US Dollar as investors tread the cautious path of risk aversion. That, in the current climate, means they sell higher yielding but potentially more risky investments and buy into the safer and more secure areas like US treasury certificates. Some of that SU Dollar strength has dissipated overnight and whether that flow will do a rapid about turn tomorrow night is the central theme of the next 36 hours or so and everything else pales into insignificance until that announcement is made.
There is no universal agreement that the Fed’s plans are the right path and many critics point to the further expansion of the money supply as bringing the risk of much higher inflation but the Fed seems to see it as their way of avoiding the ‘lost decade’ scenario that is remembered from Japan’s excruciatingly slow recovery from recession in the 1980s.
The repercussions of the US Dollar strength and weakness are being felt elsewhere as well. The Pound had a pretty good day; breaking above €1.15 and staying there through the overnight session. It bodes well for a push o €1.16 in the short term but, if the US Dollar weakens tomorrow night after the Federal Reserve announcement, the Pound will fall with it. This may not be the most spectacular Sterling - Euro exchange rate for Euro buyers but for those who prefer to remove risk from their currency arrangements, it would be better to trade ahead of tomorrow’s announcement than wait and find out you have lost money. Alternatively, placing a protective ‘stop loss’ automated order at a level you can afford to take as a worst case scenario, may make the process simpler and less stressful. Your Halo Financial Consultant can guide you to the solution that suits your particular circumstances.
The Eurozone had little in the way of data yesterday and the same could be said for today so don’t expect fireworks on any Euro related exchange rates but remember the US Dollar is strengthening across the board, and that includes against the Euro.
In other news, the Reserve Bank of Australia raised its benchmark interest rates by 25 basis points overnight. The move was a surprise to most traders; the bond markets had only factored in a 30% chance of a hike. At 4.75%, the Aussie interest rate is very attractive to international investors and the Australian Dollar’s overnight gains reflect that popularity. The move is at odds with so many other central banks which are still in the cycle of increasing the money supply and keeping interest rates at record lows and reflects Australia’s continuing economic success; driven largely by exports to China but supported by the strength of the Australian banking sector.
That is about it on the data front. As mentioned earlier, tomorrow’s Federal Reserve announcement is the only news story being widely discussed on the Business TV channels and newswires and that decision is going to signal the path for most exchange rate in the months ahead. If you want to prepare for both positive and negative eventualities, it is easier to do so than you think; just call us or email in and we can discuss your specific requirements.
In the meantime, I’ll leave you with this thought. Researchers have calculated that Britons who hit the snooze button on their bedside alarm each morning waste an average of 91 hours a year. There are two thoughts here; 1, why do they think an extra 15 minutes in bed is ‘wasted’ rime? 2, that equates to roughly 230 days per lifetime. So if you leap out of bed when your alarm goes off, you will get the equivalent of an extra 2/3 of a whole year within your lifetime to do more stuff. Books have been written in less time, many degree courses probably only last that if you take out the time spent in the student union bar. So your whole life could change, you will have more friends and you will make more money if you can just go cold turkey on the snooze button.
Nah neither am I.