BoE Calls for Big Rate Cuts; Pound Could Suffer More

Many traders are already on leave ahead of the long US Labor Day weekend holiday, causing trading volume to be thin in the forex, stock and oil markets. And with such reduced volume and trading interest, the markets are trudging along in a whipsaw zig-zag manner. Even news of a better-than-expected US GDP data or a worse-than-expected UK CBI distributive trade survey failed to elicit any long-lasting response from the US dollar or the British pound beyond their knee-jerk reactions, till someone spoke about interest rate cuts after these data releases.

Bank of England’s David Blanchflower came on the wires saying there is a need to see a big fall in UK interest rates and probably quite quickly as inflation is likely to drop like a rock in the medium term. He also said that it is misguided to worry about inflation when the economy is going into recession. Guess what, the British pound is going to drop like a rock too.

Today’s release of US GDP report showed a 3.3% annualized increase in the second quarter, much more than the advance estimate of 1.9% issued last month. In comparison, the first quarter annualized growth was 0.9%. Record increase in exports have spurred growth but the question many are asking is this: Will the 2Q growth be the best showing for the year? Now that the Eurozone and Japan are experiencing a contraction in growth, they are likely to import less goods from the US. Less exports means less money flowing into the economy.

Another piece of information released today that should give the US dollar another reason to rally was the speculation that the US, Europe and Japan  discussed forex intervention back in March this year, just when news of Bear Stearns’ collapse broke.

According to The Nikkei, the central banks’ officials did not specify levels for initiating the dollar rescue plan, but apparently they agreed to coordinate aggressive buying of the US dollar to support the currency and to sell the Japanese yen in the event of a sharp dollar fall. Although the dollar has rebounded quite a bit since falling to a record low against the Euro in mid-July this year, the idea of a coordinated intervention should stem another steep dollar decline.

EUR/USD couldn’t break above resistance around 1.4810-20

in forex trading

, and its nearest support is around 1.4700. USD/CHF’s nearest support is around 1.0880, then 1.0840. GBP/USD is again hovering around 1.8280. If this level breaks, expect another round of selling.

Comments

[dieuwer:]

The pound bubble has bursted

2008 Aug 28 04:13 PM

[MC dk:]

NOW, the richest dollar man in F.i.a.t. world is.....
a paper boy from....Zimbabwe
Making 800 trillion million a week

2008 Aug 29 12:14 PM