Category:Interest Rates and Currencies

The US central bank lowered rates to 3% from 3.5% after a two-day meeting. Last week, the Fed slashed the cost of borrowing by the largest amount in 25 years in a shock move to calm tumbling global stock markets.  If you consider the double reduction over 9 days as one event, that’s a 1.25% …
Continue reading US rates down again

Yesterday the US Federal Reserve cut its base rate from 4.5% to 4.25% and the markets slumped. They had expected a bigger cut. While the rate reductions may ease the pain of interest payments, they do not address the fundamental problem of overconsumption fuelled by credit (further analysis here and here). In fact the reductions …
Continue reading Cutting the US interest rates is still not the answer

The Bank of Canada cut interest rates for the first time since April 2004, saying that the global economic outlook looked uncertain. It cut rates by a quarter of a percentage point to 4.25% from 4.5%.  The central bank said that it expected financial market turmoil, stemming from a collapse of the US sub-prime mortgage …
Continue reading Even Canada has cut rates

Gisele Bündchen the world’s richest model has given up on the dollar. She now requires that contracts are priced in euros because she does not want to suffer depreciation. Well done Gisele. Now if the oil market can be de-coupled from the US dollar too and central banks diversify their currency holdings, economies around the …
Continue reading Even blondes prefer euros to dollars

The Fed lowered the federal funds rate by 0.25% to 4.5%, as the markets expected and desired.  The vote was not quite unanimous with one governor voting to hold.  The discount rate was also reduced by 0.25% to 5%. The reduction in the fed funds rate was almost required given the anxiety of the market …
Continue reading US interest rates eased again, of course …

A graph of the Euro/Dollar exchange rate puts us in the picture. I expect it to continue its trajectory for at least three months.

The Indian rupee has risen to its highest level against the dollar since 1998, touching 39.32 to the dollar. The rupee has risen 12% against the US dollar this year. The Reserve Bank of India has intervened in the market to limit the rupee’s rise, purchasing more than $38 billion this year. Foreign demand for …
Continue reading Indian rupee rising

Its not just the professionals that have benefited from the yen carry trade.  Japanese housewives have been moonlighting as currency speculators too.  Unfortunately, in the past couple of months the reality that there is no risk free investment has hit them hard, often wiping out savings in a few weeks because of leveraged/margin positions.  This …
Continue reading Japanese housewives trading FX

Many observers have noted the spike in food commodity prices, underpinned by interest in corn for ethanol in the US.  There also appears to be a broader rise in prices of commodities which is bound to push up inflation.  Last year the pressure on metal commodities from demand from China was observed.  As the chart …
Continue reading Commodity prices underpin inflation

China’s central bank increased rates for the fifth time this year. The one year lending rate is now 7.29% as authorities attempt to ease inflationary pressure. However, the build-up of reserves continues as those that can borrow US$ at under 5%, like multinationals and foreign investors, do.  The discrepancy between interest rates net of currency …
Continue reading Chinese rates up again, but inflation still an issue