Monday, February 4, 2008


The US Dollar has continued to lose value against major currencies since the credit crunch began last year, and rate cuts by the US Fed continue to hurt the USD

Aug 20, 2007- Jan 14, 2008: The Euro is up 10.46 % against the USD. Economic growth in Europe is slowing even as inflation concerns continue to grow; the ECB may have to cut rates, as the strong Euro is hurting European exports.

CHF/USD: Sept 4, 2007 - Jan 31, 2007: The Swiss Franc is up 11.66% vs the USD. In times of crisis, it is viewed as a safe currency, and it will be a key beneficiary of any carry trade unwinding.

GBP/USD: Aug 2007- Jan 2007, and the GBP has been unable to hold onto its gains vs the USD. After hitting a high of 2.1104 , the GBP has weakened considerably, on concerns of upcoming rate cuts, a slowing economy, and a weakening housing market

Interesting trends:

Meanwhile, the Euro has gained 10.35% vs the GBP (Sept 5, 2007- Jan 31, 2007)

The Euro has been flat against the Swiss Franc(CHF). Since December 2007 the Euro has weakened against the Swiss Franc, only to regain part of its losses on concerns of a rate cut in the CHF

The Key questions now are :

  • Are we going to see rate cuts from Central Banks around the world, in an effort to reflate slowing growth in developed economies ?
  • How long can the BOE and the ECB hold their rates, if the Fed continues to cut interest rates ?
  • How are the USD pegged currencies of the Middle East going to continue to cut rates, when local inflation rates are rising ? eg: Saudi Arabia inflation = 6.5%
  • Will the US Bond market see slowing inflows, or even outflows, as the interest rate differential of a low yielding USD, and high yielding Asian Currencies continues to widen ?

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