Forex Investment and Currency Trading

The US dollar experienced a weakening in the first half of December as the US started to effect a more visible quantitative easing policy. The Fed’s policy shift to QE also brought with it an improvement in global risk appetite and hence a partial reversal of some of the surge of short term flows into USD from September-November.

This interruption in the USD appreciation cycle proved to be short-lived. By most measures the rebound in the USD since mid-December has been pretty convincing, although not yet back to the highs of November. That said, the USD rebound differs in a number of respects from the first round
appreciation starting in mid-July.

That first round was dominated by USD strength against imploding ‘commodity’ currencies, when the weakening global outlook triggered a reversal in actual and expected prices for cycle-influenced commodities. The ‘second round’ USD appreciation has been more nuanced. The relative weakening of the GBP and EUR in this second leg of USD strength largely relates to a sharp downshift in expectations for the ‘terminal’ BoE and ECB interest rates. ‘Commodity currencies’ have been mixed. Commodity prices - ranging from the JoC metals measure, naphtha, and crude oil – have actually engaged in at least a temporary bottoming in the past few weeks.