What's Happening With Currencies?

There was a lot of volatility in the foreign exchange market Wednesday morning, driving currencies to historic levels:

GBP/USD - 26 Year Low
USD/JPY - 13 Year Low
NZD/USD - 6 Year Low
EUR/JPY - 6 Year Low
CAD/JPY - 13 Year Low
GBP/JPY - Record Low
NZD/JPY - 8 Year Low

The most significant moves have been in the British pound, which fell to a 26 year low against the US dollar and in USD/JPY, which fell to the lowest level in 13 years. Comments from former Fed Chairman Volcker triggered a wave of risk aversion that led to a technical break in the currency market. He said “we are in serious recession, with no end clearly in sight.” Although there is no question that the US economy is in trouble, by saying that there is no end in sight means that there is no hope which coming from the chairman of Obama’s newly formed Economic Recovery Advisory Board is significant. By saying that he does not an end to the recession is certainly not good advice. Treasury Secretary Nominee Geithner expects an Obama economic stimulus plan to be released in the next few weeks but unfortunately Volcker’s comments overshadowed the prospect of a stimulus plan. Tuesday’s sharp sell-off made investors nervous but Volcker’s comments pushed them over the edge.

We are continuing to see flight to safety into the US dollar and Japanese Yen. Investors are looking to hide in the lowest yielding currencies.

We also had comments from ECB President Trichet and SNB President Hildebrand. Trichet defended the ECB’s monetary policy and said they haven’t decided if 2 percent is the lowest level for rates.

Intervention by Swiss National Bank?

The Swiss franc collapsed after SNB Hildebrand said that the central banks is considering selling francs to halt the currency’s gains. With interest rates already at 0.5 percent, they have no room to ease monetary policy. Therefore they may have to resort to fixed rate currency intervention.

Comments

[Delojozafado:]

Very few articles on the US $ / Loonie relationship. While it has fallen off sharply from 95~1.05 to the current 1.26~79.6 level, the Loonie has for nearly a month now just been hanging out at the .80 level. There is no apparent momentum for this currency one way or another. My question is what is the glide path for the Loonie likely to be here and going forward in the near term. Any thoughts on the steepening US Treasury yield curve affecting the Loonie exchange? Energy investments with yield? TRP for instance? I just can just not discern whether or not there is any trend left for the Canadian Currency. We see the author offers up another blog entitled, "British Pound could be headed for 16 year low". What could the pointy billed bird be heading for ..I wonder...???

Jan 23 09:18 AM

[Delojozafado:]

So that was the question this morning. Now the question is what the heck happened to launch the Loonie down the catapult to a +2% gain in today's currency trading? Were the units of Great Lakes Hydro up or down today? The GLHIF.PK moved up(+) .64%, while the GLH-UN.TO was down(-) .96%. There's a currency thing in there someplace. If this tend continues it is likely to result in a distribution increase for some, I would think. Is the US dollar weakness driving down the prices in Canadian currency for Canadian shares?

Jan 23 03:59 PM