Bank of Japan slams yen

British pound – British interest rates were last moved in March 2009 when the Bank of England cut its policy setting to 0.5%. Today, some 28-months later it maintained its stance and we’ll have to wait until August 18 for the minutes to find out whether the two hawks voting for a rate hike have changed their minds. Next week the Bank’s quarterly projections will be released at a time when there surely must be downside pressure from a string of weak economic data points. Recent gauges of retail sales and manufacturing have dimmed to the weakest in one and two years respectively. All of the earlier arguments surrounding the need to address inflation are taking second-billing to the dramatic slide in asset values. The pound slipped to $1.6289 at its session low but recovered to $1.6338 while it rallied per euro to 86.74 pence.

Aussie dollar – The Australia dollar has certainly underperformed this week suffering a sixth-straight session of losses as investors stare ahead in to the worst global growth outlook since the financial crisis three years ago. The nagging doubt at the back of traders’ minds is that the Reserve Bank faces a tough-time ahead in maintaining its benchmark rate of interest at 4.75%. The central bank earlier warned that global angst must come ahead of a medium-term desire to tackle inflation. Price pressures will now likely dissipate faster in coming quarters and that prospect is chipping away at investors thought process as they discount an imminent easing in monetary policy. According to forward rates in Aussie money markets there is a 96% chance of an October-time rate reduction. The Aussie is likely to suffer from a reversal in attitude from investors now expecting its yawning yield differential relative to the dollar to collapse.

Canadian dollar – And while the yield differential between Canada and the U.S. is far closer at the outset, traders indiscriminately sold assets across the board that could in anyway shape of form be perceived as riskier propositions. As crude oil futures slid beneath $91 per barrel, the so-called loonie fell to $1.0350 U.S. cents. On Friday the Canadians release the July employment report keeping currency traders hopping today.

Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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