Cable breaks the twain !!

[dizbuster]

Early morning Asian activity saw the US Dollar/Sterling nudge the big "2.00" only to recede back to mid 99's. Then later, just as most London market traders were still scoffing their breakfast on the train into work, the rate crashed through the big psychological "2.00" barrier and now seems to be bouncing back off it on the dips.

Intra-day high appears to be around 2.0030/40 and as I write this it's around 2.0020

Could Gordon Brown's step up be the reason ? Or perhaps the Fed's announcement to "keep rates steady" was taken into consideration along with the imminent (apparently) GBP Base Rate hike in July - BoE board say it appears to be inevitable.

Woohoo !! It's days like this that get the old blood pumping again, with me wishing that I was still sat at a trading desk in London

[MadNomad]

Hi I am actually very interested in what the US dollar is doing and expected to do in 2008, when ill be in Phuket....However I dont understand allot of the language ters that are being used.....could you please "dumb it down" so i could understand.....thank you for taking the time if so.....I do hear the US dollar is suppose to make a comeback feb 08....i hope.....

[K2]

Break of 2.0000 peaked at 2.0135 on 18th April this year Diz - in 1980 was around 2.33 (mid) - see the thread that LiL started a while back ...

http://www.phuket-info.com/forums/mo...ial-offer.html

(Sharpen up there .... 5555.... yep I miss it too Diz, but still fortunate to be active for myself with the benefit of not being answerable to anyone)!


As for FOMC decision ....

THE DECISION: The Federal Open Market Committee Thursday left its key interest rate unchanged at 5.25%. The decision was widely anticipated and marked the eighth straight time the FOMC kept rates steady after 17 consecutive increases beginning in the summer of 2004.

THE ANALYSIS: While the Fed officials acknowledged recent price improvement and said they expect inflation to keep moderating, they said the downtrend hasn't been "convincingly" established.
Many economists expect the federal-funds rate to remain at 5.25% for the rest of the year, though financial markets still think the Fed's next move eventually will be to cut rates, not raise them.

ELEVATED ELIMINATED: The Fed omitted a reference to core inflation being "somewhat elevated," which had been in the previous two statements. Since the last statement, core inflation readings edged lower, with the Fed's preferred gauge - the price index for personal consumption expenditures excluding food and energy - running at a 2% annual rate in April, its lowest since early 2006.
The Fed doesn't have an official inflation target, but has long been assumed to have a comfort zone between 1% and 2% for core PCE. By eliminating the "somewhat elevated" reference, officials seem to be suggesting that they are happy with the core PCE near 2%.
The Fed's task, said ING Bank economist Rob Carnell in a research note, "was to acknowledge that core PCE inflation had fallen to the very top of its 'comfort range'...without giving the impression that it was getting too relaxed about inflation."

AN ASSESSMENT: The Fed's carefully crafted statement means higher U.S. market rates could well be here to stay in the months ahead.
For all the tweaks in the latest FOMC statement, policymakers remained focused principally on inflation, and that is likely to limit the market's room for a rally. Barring a cataclysm in the U.S. subprime markets, Treasury yields should stay around or above the 5% mark as the summer heats up.

THE MARKETS: Treasury bond prices fell and the dollar held steady, while stocks showed only marginal gains after the Fed left its key lending rate unchanged and continued to emphasize inflation risks.
However, investors' hopes were dashed that policy makers would highlight a recent easing in inflation outside of the volatile food and energy sectors. That led to selling in government notes, most notably in short maturities. These are the most sensitive to official interest-rate changes.
The dollar, for its part, held steady as investors digested the Fed's statement, trading at Y123.14 from Y123.13 ahead of the statement, while the euro was unchanged at $1.3452.
The DJIA ended down 5.45 points to 13422.28 after being up as much as 70.56 after the Fed's announcement. The market was so choppy after the Fed's late-afternoon comments because the central bank set up a bull/bear scenario, said Georges Yared, chief investment officer at Yared Investment Research. "One of the upsides is the dropping of the word 'elevated' in regard to the rate of core inflation. A downside is the Fed is still concerned about high prices and continues watching the housing market."
Gold showed no reaction to the FOMC decision.

THE OUTLOOK

Fed-funds futures moved modestly lower, and still see the FOMC keeping its target rate on hold at 5.25% when it meets next on Aug. 7. For the Sept. 18 Fed meeting, the market prices in 5% odds for a rate cut to 5%.
In Eurodollar futures, the September contract priced in 24% odds for the FOMC to cut its benchmark rate to 5% in the third quarter. By the end of the year, the December contract prices in 36% odds for a rate cut to 5%, compared with 40% odds for the move prior to the FOMC announcement.
Looking into next year, the Eurodollar market prices in 56% odds for a rate cut in the first quarter, and 64% odds for the move in the second quarter. At Wednesday's close, the market priced in 80% odds for a first quarter rate cut.

WHAT THEY SAID

"The Fed is on hold and probably will be for months, if not quarters." -Steven Wood, head of Insight Economics, in a research note.

Post FOMC decision, John Canavan, market analyst at Stone & McCarthy, said that with the Fed continuing to emphasize inflation as a primary concern, Treasurys will see further downside. Decreased expectations of an easing in rates could take the two-year note back to 5%, he said, in the near term, with Treasurys yield curve pushing flatter.

The FOMC's statement is surprisingly hawkish, dismissing the slowdown in core inflation, and shows the Fed is running out of patience on the inflation issue, said Richard Gilhooly, director of fixed-income strategy for BNP Paribas.

"Many will overanalyze the policy statement, which continues to paint a picture of monetary policy that is likely to be little changed in the months ahead. A Fed that describes the economy and inflation in friendlier terms than before is generally treated bullishly in the markets, particularly the stock market. If the policy statement fails to get the equity market out of its funk today, it would provide further evidence of the depth to which fears about credit conditions have increased," said Tony Crescenzi, chief bond market strategist at Miller Tabak

"The net change in their position is therefore trivial; they still expect a 'moderate pace' of growth. They will only ease if unemployment rises, reducing 'resource utilization,' or core inflation falls so fast it scares them, We think these are both decent bets,but not for the next few months. On hold till Dec at the soonest, we think," said Ian Shepherdson, Chief U.S. Economist at High Frequency Economics

"The Fed decided the easiest way to signal no change in the policy outlook was to hold the number of changes to the policy down to the bare minimum. The controlling balance of risks paragraph was identical to those of the past two meetings. The message: recent short-term swings in the data haven't altered the Fed's basic forecast," said Lou Crandall, chief economist at Wrightson ICAP

"This statement highlights the contrast between the reported inflation figures and the upside risks to future inflation. The trends in total and core inflation are likely to further aggravate this contrast and could lead to further surprises despite the Fed's best efforts to educate the market," said Drew Matus, economist at Lehman Brothers

[MadNomad]

that made no sense to me...but thanks to your minimal effort to let us "lamens" know what your talking about...i did what all like to preach here and spent an hour online reading through articles. I went back read what you wrote and now understand. The US dollar isnt going due to the fact that the chinease are using the stability with small gains to stabalize and increase thier income by having people move to the cities.........ok my head hurts...back to bg pics

[dizbuster]

I'm not so sure that this is a case of a weaker dollar, but more to do with a stronger pound which now looks set to test 1.50 against the Euro and 250-- against the Yen.

In the good old days (sigh !!) Sterling tended to ebb and flow with interest rate hikes/cuts and it now seems that with GB in charge, the markets perceive that he will run the country more as a financier than a politician. It would seem that they are happy with the country's finances with him at the helm and therefore and we are starting to see more long Sterling positions being taken.

Of course, this is just my opinion based on what I have read and heard.

One thing that I did note today which made me laugh, was that the Beeb's website was quoting 61.55 baht to 1 pound in their travel money section. However, they were quoting 69.15 at the same time on their page showing Asia Pacific currency rates A complete opposite of Thailand where they are quoting circa 67/68 for tourist money and xe.com who are quoting the interbank rate as 63.60

[K2]

Dont really think its a cable issue per say Diz - more a carry play - the JPY X's all ramped up over last two years. Look at NZD/JPY - 7.5% +ve carry - how sexy is that (relatively) risk free!!

U.S. Dollar Index (DX, NYBOT): Monthly Price Chart

Above link to long term Dollar Index - if it was not for $/JPY we would be below 80.00 by now - but looks like chance of double bottom, so I'm thinking that perhaps the USD is due for a bit of a bounce.

Gotta love a spread like that 61.55/69.15 !!!!!! Happy days if you can find some muppets eh 555555555 !!!

[visa2003]

Ok, you guys sound like you might know what you are talking about!!!!
Any ideas as to why the TBH is so strong against the OZ$????
The $A seems to be going gangbusters against the greenback but not moving against the Baht.
May only mean a difference of 1 or 2% over a holiday budget, but I like to get the best bang for my Buck!!!!
BTW Thursday's close was reported in the newspaper @27.34Bt /$A, but I just got the bill for hotel in Patong (Booked and paid for 27-6-07) and Visa are using 28.13!!!!!!

[dizbuster]

Originally Posted by K2

Dont really think its a cable issue per say Diz - more a carry play - the JPY X's all ramped up over last two years. Look at NZD/JPY - 7.5% +ve carry - how sexy is that (relatively) risk free!!

U.S. Dollar Index (DX, NYBOT): Monthly Price Chart

Above link to long term Dollar Index - if it was not for $/JPY we would be below 80.00 by now - but looks like chance of double bottom, so I'm thinking that perhaps the USD is due for a bit of a bounce.

Gotta love a spread like that 61.55/69.15 !!!!!! Happy days if you can find some muppets eh 555555555 !!!

Obviously the GBP crosses are impacted by the $/??? rates but I have noticed a gradual increase in GBP/major rates for a few weeks now. Even GBP/CHF is looking like 2.50 could be tested soon.

On the Dollar side, will the GBP crosses be affected by a dollar showing signs of strengthening ? No evidence to suggest that this is the norm, more a case of sometimes yes, sometimes no. More likely that political factors are playing a bigger role than usual in GBP rates at present I think.

[K2]

Visa2003 - will give short response as could get into quite lengthy piece .....

THB is strong on the back of CNY - all SE asian currencies have strenghened with the CNY - the best performer this year being the PHP.

THB strength despite the coup/south problems/strange BoT policies is a bit of a mystery but SET is cheapest (in P/E terms) of SE markets so still attracting foreigner buying. I think one day the THB will weaken sharply as the JPY has - especially now Thai rates are below US rates.

The AUD has strengthened against USD (and most other currencies ex NZD) as 6.25% attract carry trades. However the AUD strength has not shown much against the THB as the stronger THB has pretty much neutralised the AUD gains.

Diz - EUR/GBP sitting in a 0.6700/0.6870 range (Oh for the days of GBP/DEM) and while GBP looks to have caught a bit of bit - Blair out/Brown in ?? Yes is could be political - hard to judge Brown's credentials policy wise yet - but so far seems orderly. UK has changed a lot - focus and trade flows have increased with Europe and slowed to US. US/UK rates nearly level (US 5.25% - UK - 5.50%) - not much carry to get excited about there.

I think we are in for an very interesting 2nd half to this year - can stocks continue to rally in face of yield curve steepening. Will the USD bounce and when will the JPY carry trade unwind. Plenty to keep me busy !!

[dizbuster]

Originally Posted by visa2003

Ok, you guys sound like you might know what you are talking about!!!!
Any ideas as to why the TBH is so strong against the OZ$????
The $A seems to be going gangbusters against the greenback but not moving against the Baht.
May only mean a difference of 1 or 2% over a holiday budget, but I like to get the best bang for my Buck!!!!
BTW Thursday's close was reported in the newspaper @27.34Bt /$A, but I just got the bill for hotel in Patong (Booked and paid for 27-6-07) and Visa are using 28.13!!!!!!

Kev (K2) pretty much summed it up, but getting right down to basics, it's all about triangulation. By that I mean that when 3 currencies are involved, there is 3 sets of rates and they all interact.

For example, GBP/USD/THB

When GBP/USD was 1.60 and GBP/THB was 70.00 it meant that by just doing a quick calculation you could work out what rate USD/THB was, i.e. (70 / 1.60 =) 43.75.

Now that GBP/USD has moved to 2.00 the same triangulation occurs. If GBP/THB is 63.20 then it means that USD/THB is (63.2 / 2.00 =) 31.60

AUD has done the same against USD and THB. By that I mean that if the USD/THB is 31.60 and the USD/AUD is 1.18 then AUD/THB is (31.6 / 1.18 =) 26.78. Now if USD/AUD was to go up to 1.30, it doesn't necessarily mean that the AUD/THB rate will be (31.6 / 1.30 =) 24.31 However, if the USD is strong against the AUD, then the chances are that it will be strong against THB as well and the USD/THB rate will rise.

But what happens when the THB is the strongest of the 3 currencies?? It could well be that although USD is stronger than AUD and the rate perhaps goes up to 1.30, the USD/THB goes down, let's say to 30 and therefore the AUD/THB rate would be (30 / 1.30 =) 23.07

In this scenario, the THB is stronger than the USD and the rate has gone down from 31.60 to 30.00 and it is also stronger than the AUD as the rate has gone down from 24.31 to 23.07 The USD/AUD rate goes up because the AUD is weakest and the rate is 1.30

Use the same USD/THB rate (31.60) but let's say that AUD is currently stronger than USD, then if the USD/AUD rate goes to 1.15, the AUD/THB rate goes to (31.60 / 1.15 =) 27.48