Forex Investment and Currency Trading

The BOE finally gets it, the SNB has leapt ahead of the next scheduled meeting, and the ECB is now going to look way behind the curve if they ‘only’ cut 50bps.    Obviously this is all fodder for front-end bulls and has to lead to significant reassessment on the low point in various rate cycles.              For currencies, the choice was whether this is panic that is negative for risk, or proactivity that is potentially positive for risk?  The market is giving the BOE the benefit of the doubt with the FTSE and GBP rallying.   The question is whether the UK’s volatile but mildly risk positive response and some greater proactivity elsewhere in Europe (at least from the SNB) will translate into a weaker USD in keeping with the risk appetite up – USD down, correlation.  On the day it probably plays small USD negative, but in the broader scheme of things over coming days, rate spread convergence toward very low USD rates, is ultimately good for the USD.  As an example over the last 3 mths the 2yr EUR-USD spread explains over 80% of the variation in EUR/USD, consistent with the idea that rate spreads are still working in an orthodox fashion, even if they are often far from primary drivers day to day.

GBP USD 5 minute chart below