Forex Investment and Currency Trading

G10 central banks have gone generally into quantitative easing mode, with the Bank of England most recently now squarely in such policies. Their announcement of GBP75bn in asset purchases, on top of their 50bp cut to 0.50%, actually disappointed markets looking for an even larger initial purchase, hitting GBP both on currency-debasement and low growth fears. Meanwhile, the BOC appears to be the next headed next toward; they have cut rates to 0.50% like the BOE, and stated they are “refining” their approach for credit and quantitative easing. Remain short GBP-USD and long USD-CAD in your FX portfolio, reflecting how you think other central banks moving into quantitative easing will be negative to their currencies.

While the ECB is at 1.50% after their own 50bp rate cut, they will likely continue to cut further. Some market analysts expect them to cut to 1.00%. EUR-USD has remained roughly bounded on the downside at 1.25, although still well outperforming GBP. Analysts expect the wide combination of USD shortages, shrinking diversification demand for EUR, and both the general risk-negative environment and growing fundamental case for USD strengthening to eventually break EUR-USD lower, toward 1.20 by end-Q2.