The Bank of England held both interest rates and its bond purchase (quantitative easing) program steady yesterday, prompting the pound (GBP) to its highest level against the US dollar (USD) in the last month, showing signs that their recovery may be underway.
There was some fear that the BOE would have to take further action, as Mervyn King had called for greater measures back in August, which was defeated.
With Australia leading the way and raising rates this week, it may be difficult for Bernanke and the Fed to maintain its “overkill” policy of ridiculously low rates and Q.E. Meanwhile, the US dollar continues to weaken, down across the board most notably weak against the Aussie ( AUD/USD +1.47%) which comes as no surprise to anyone.
It looks like the USD carry trade is in full effect, as a strong overnight move pushed this pair through .90 level.
Here’s a 3 month chart of the AUD/USD– I’m seeing LOTS of green– (click to enlarge)
I’m starting to get the “feeling” that the Fed is going to act soon. While the economy may be improving ever so slightly, we really need to see that the Fed believes we are recovering as well. A token rate-hike would actually be seen as a sign that the economy is on the mend, which could inspire confidence in all markets. While there may be an initial reaction that is negative, in the long run this would be the best course of action. I just hope the Fed is not too short-sighted to see it.
So from here on out, expect the dollar to weaken unless the Fed does something to halt its decline. It may be coming EXTREMELY soon.
To learn more about how you can protect your wealth from the Fed’s devaluing of our currency, check out our currency trading courses here.
To see how this market works first-hand, get a free, real-time demo account here.
none