Forex Investment and Currency Trading

Korea cuts 100bp, KRW surges. The Asian FX rally picked up pace during the session, this time not relying on a large equity bounce for fuel. Rather, positioning seems to be the driver as long USD/Asia trades are unwound ahead of year end. USD/SGD sank from above 1.5000 in early Singapore to below 1.4920 while USD/INR slid about 0.8% at the Mumbai open. The Korean won did have some domestic fuel, as the Kospi out-performed (+1.7%) in the wake of the Bank of Korea’s larger than expected 100bp base rate cut, to 3%. USD/KRW sat about 3.5% lower in afternoon trade, with no evident concern about BOK governor Lee’s explanation for the aggressive easing, which included phrases such as “verge of emergency” (at least in translation). USD/CNY was notable only for its tighter trading range, as the spot rate moved closer to the morning fix (6.8471) than we have been seeing. For the past nine business days, the fixing has been within +/-0.04% of 6.8500. Not 0.4% but 0.04%! Currency stability indeed - but not welcome in Washington DC, where the US Treasury’s semi-annual report included a call for a resumption of the early 2008 pace of USD/CNY decline, despite explicitly noting the rise in the trade-weighted yuan. A senior Chinese govt official declared there would be “no problem” in achieving >8% GDP growth in 2009, even as a US investment bank’s 6% forecast hit the wires