Fed’s Plosser: This ain’t working guys

Euro – When you look at a chart of the euro you realize just how patient investors have been with delinquent European authorities, who collectively have failed to ring fence the region’s debt crisis. The single currency has been favored by most over the dollar in what many term ‘an ugly contest,’ on account of the Fed’s willingness to travel farther down the quantitative easing path. Many observers look at that policy incorrectly as ‘printing money’ and conclude that the Fed is swamping the supply of dollars. A Wall Street Journal article this morning stated that the New York Fed was in discussion with local officers at European banks to discuss their liquidity sources and to better understand their ability to maintain operations should stresses rise. The confirmation arising from this week’s Franco-German crisis talks that a euro bond agency was not on their to-do list has also undermined confidence in the euro. The euro’s recent buoyancy seems to be linked more to dealers awarding the authorities the benefit of the doubt in reaching solution, which is could be a disastrous game to play. The euro swooned in light of fresh weakness in U.S. data on Thursday to reach $1.4274 as demand for the dollar picked up on the back of tremendous weakness in equity prices.

British pound – The pound continues to look remarkably resilient in the face of continued economic weakness. Retail sales data released earlier rose by less than hoped for to gain 0.2% in July over the prior month. Excluding sales of fuel, sales were lower by 0.2% on the previous year. Until Thursday the pound had risen against the dollar for five sessions, but the weaker form of the data and a rally in the dollar caused it to backpedal to as low as $1.6424 having reached $$1.6553 earlier. The pound also continues to offer solace to investors seeking shelter from the European unit rising to 86.96 pence per euro.

Aussie dollar – Selling of equities that started in Asia after Morgan Stanley pulled the rug from underneath the feet of global growth followed-through in the U.S. time zone. Risk appetite was simply shunned following a slump in the Philly Fed’s gauge of economic activity, which reached -30.7 after recording 3.2 last month. Most disconcerting was the new orders index with just fell off a cliff. Demand for Aussie cratered as a result followed equity prices lower. The Aussie earlier reached $1.0357 U.S. cents for a two-and-a-half cent loss on the day.

Canadian dollar – From a midweek high at $1.0227 cents the Canadian dollar has slumped smartly to buy just $1.0060 as risk appetite curls up to die in the corner. A plunge in crude oil prices accompanied by the weakening picture of health in the U.S. economy weighed heavily on the loonie on Thursday.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

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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