The US dollar has suffered across the board following last night’s announcement from the Fed that they will issue a further $600billion in a second round of quantitative easing (the figure could actually be closer to $850billion if you include the toxic debt reinvestment scheme).
In the wake of the announcement, sterling has risen to its highest level against the greenback in nine months, almost touching $1.63. The announcement of QEII in the states contrasted with the decision from the Bank of England. At midday, the BoE announced it had decided to keep interest rates and its asset buying programme steady, enabling sterling to rise over two cents on the session.
The euro rose to a session peak of $1.4281 against the US currency after a considered, but slightly optimistic speech from JC Trichet. The size of the new bailout package across the pond, combined with the ECB alluding to a slight upward pressure on the euro from inflation sent the single currency to its strongest position since mid January.
The aussie dollar finally found stability above parity with its US counterpart to a high of $1.0146, that’s right, one George Washington is now worth less than one Queen Elisabeth II (QEII spooky?). The combination of the highest interest rates in the G20, high commodity prices and insatiable demand from China has finally proven to be enough to break through the psychologically important parity level.
This spate of dollar weakness does present a fantastic buying opportunity, especially for those long of the aussie. With the US debacle sorted until next July (hopefully), expect to see a resurgence from the greenback in the future, especially when the eurozone is no longer capable of sweeping its increasing worries under the proverbial rug.
Tom Hampton
Analyst – Caxton FX
