Forex Investment and Currency Trading

Markets are mixed this morning, and seem to be a little more cautious heading into today’s FOMC announcement. Equities are up marginally, commodity prices are a little softer, and the US dollar is in the middle of the pack of currencies compared to yesterday’s close.

The New Zealand dollar has managed to climb even higher overnight, reaching a high of just over 0.73 against the USD after a slightly stronger than expected GDP report. AUD/NZD continues to tumble, despite the Australian dollar performing relatively well too, and bottomed out a little above 1.20 on the back of the GDP report, its lowest level since January. This currency pair seems particularly overdone, given that the Australian economy has been outperforming New Zealand’s by a large margin.

Sterling was one of the top-performing currencies this morning, after the latest Bank of England minutes were more hawkish than expected. The council voted 9-0 in favour of unchanged rates and continuing with the program of £175B in QE. More importantly, King’s comments last week that the “BoE will reflect on lowering the deposit rate” does not register at all in the minutes. Many comments in the minutes were considerably more upbeat on the economy, and the BoE noted that “inflation could rise sharply” after September, and talked about why CPI is not falling more rapidly. GBP/USD has risen through 1.64, and EUR/GBP has the scope to retrace quite a bit as it was at 0.8800 when King spoke last week.

Today the focus for the markets is going to be on today’s FOMC meeting. With no major changes
expected to the Fed’s policy stance, analysts think that the focus may be on the economic assessment, which is likely to be improved from the time of the last meeting. When Bernanke spoke last week, markets focused on his assertion that the US recession is “likely over.” We could see a rally in risky assets this afternoon if the Fed upgrades its outlook from “levelling out” to something that signals growth.