We summarise the most important news stories that occurred in the past week in the world of forex. We start with the week commencing 18/10/2010 as the USD drops in value against its counterparts…
On Monday the biggest news story was the fall of the dollar against the yuan and the euro. Early during the week China announced that they will continue to appreciate the yuan at a moderate pace following the IMF summit where currency was high on the agenda. However, as the talks ended in stalemate policymakers will have to rely on the IMF to address trade imbalances and capital outflows. The central bank was also accused of flooding foreign markets with capital by keeping interest rates at record lows.
Tuesday saw the dollar rise marginally against the euro and a basket of other currencies in global forex, supported by investors covering short positions. Traders said automatic sell orders were beginning to accumulate just below the dollar’s current price of around $1.380-35 against the euro. Traders were cautious of selling the dollar ahead of the Federal Reserve announcement in a month’s time. It was expected that a further stimulus would be announced. Forex traders expected the yuan to rise a further 3.6 per cent within the next 12 months, extending the 1.7 per cent gain seen in September.
Then on Wednesday tensions between the world’s two largest economies threatened to deepen after China’s foreign currency holdings surged to new record levels.
Although the size of China’s currency holdings increased at its lowest pace in 11 years in the second quarter of the year, figures for the following three months show a $194 billion increase, taking total reserves to $2.65 trillion. The dollar slumped in global forex trading during the third quarter, flirting with 15-year lows against the yen while the yuan appreciated at a modest pace that has accelerated in recent weeks. Calls for a more rapid appreciation of the yuan were called as more were blaming China for keeping its currency artificially low.
Meanwhile in the UK Andrew Sentence (BOE) suggested interest rates need to be raised incrementally to avoid routinely missing inflation targets. In a speech delivered in London yesterday (October 13th), the Monetary Policy Committee member said that while the central bank must be careful not to curtail growth during this tentative stage of recovery, it should not be seen to tolerate persistently high inflation.
Then on the Friday the pound rose to an eight-month high against the dollar despite remaining close to a six-month low against the euro. The dollar’s broad losses were attributed to Singapore’s decision to widen the trading band of the Singapore dollar, which put selling pressure on the greenback. The Bank of Japan took the decision to buy dollars in a bid to curb the rise in the yen – many other regional economies were preparing to take similar currency action.
The Canadian dollar was also in the news as it hit parity with the USD for the first time in six months. The Canadian dollar gained 2.3 per cent against the US dollar in the last month, while the USD itself has fallen against all 16 major counterparts.
Hard commodities began to gain traction in the US as investors look for alternatives to currency, with gold at an all-time high and crude oil breaking out of recent range trading above $84 a barrel.
Summary provided by Corporate FX. Registered in 2001 and based on Cornhill in the City of London since 2007, Corporate FX are a market leader in supplying commercial forex trading services and hedging strategies including trading Forex Spot.
About the Author
Article by corporate-fx.co.uk