Forex Investment and Currency Trading

Although equity markets have stabilized in the last 24 hours, there’s still a lot of hesitation and uncertainty this morning. The China-US trade rhetoric continues, with China announcing that it’s going to bring the issue of tire tariffs before the WTO; China released data this morning showing that tire exports to the US actually declined in the first half of 2009, which it says proves that it has not been flooding the market. China has also said that it will air its concerns about protectionism at the upcoming G20 summit. This is an issue that the markets will be watching very closely.

With no clear risk on or risk off theme this morning, the major currencies are distributed a little more unevenly, as opposed to the typical pattern of the USD and JPY on one end, and the commodity currencies on the other. The Australian dollar is lagging this morning after last night’s RBA minutes weren’t as hawkish as the markets had wanted to see: “members noted that the policy decision in the near term involved balancing the risk of over-staying an accommodative stance, and that of prematurely tightening and adversely affecting confidence and demand.” While the RBA’s next move will be up, it doesn’t seem to be in too much of a hurry.

The biggest mover this morning though was Sterling; while it initially outperformed overnight on strong housing data, Bank of England Governor King’s comments this morning drove GBP sharply lower. Not only was Governor King extremely cautious-sounding regarding economic prospects, but most importantly, he said that the BoE was looking at reducing the remuneration rate on commercial banks’ reserves in order to encourage lending. GBP/USD dropped immediately from 1.6650 to 1.6515.