- The Bank of England’s astonishing 150 bp rate cut to 3% today, largest cut in 16 years and to the lowest level since 1955, sparked a quick Sterling sell-off to 1.5725, as the scale of the cut underscores the BoE’s concern about UK recession. Analysts believe the size of the cut was partly to help households and businesses exposed to variable rate loans and accelerate follow-through rate cuts, slowed by the financial crisis. The ECB’s as-expected 50 bp cut today to 3.25% was disappointing, and as the pound recovered 3 cents past 1.60, Euro/dollar slumped from 1.2900 to 1.2740; meanwhile, Euro/yen dipped 2 yen toward technical support, a sign of risk aversion as overseas equities got slammed, Asia down 6%, Europe -4%. Dow futures fell on earnings warnings. Euro/dollar recovered to 1.2870 in early US but now slipping, 3 cents below yesterday’s 1.3110. Other rate cuts today include a surprise from the Swiss National Bank, an inter-meeting 50bp cut, then 75 bp cut from Czech, and a 50 bp cut from Denmark. Market expects BoE rate to trough at 2% by early 2009, ECB to 2.5% by Jan. 2009, and Fed another 25 bp to .75% in Dec. Worries about global economies are risk negative and USD positive (except vs yen) and global Central Banks are only able to accomplish so much with rate cuts. Euro technicals have turned bearish on yesterday’s sell-off and having traded under 1.2802 support now targets 1.2528.
- Commodity currencies are steady, AUD up 2 cents on better employment data (FX strategists suggest buying AUD/Yen), and USD/CAD a tad higher after testing support yesterday at 1.1478 and bouncing after a not-so-great PMI; techicals cite 1.1890, where USD is a sell. The Baltic dry freight index is up for the second day in a row, having dropped every day since Oct. 3; it got to lows of post Asian crisis and post US 2001 recession and below cost last week, hence perhaps too low.
Forex Update - November 6 2008
November 6th, 2008 · No Comments
Tags: FOREX Market Commentary
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