The Madness Continues
These are interesting times; On the Jewish day of New Year it is not only Jews who will be looking forward and praying for better fortunes over the coming 12 months. Worshippers are woken from the previous night’s slumber by a trumpet fashioned from a ram’s horn; it’s a shame there was nobody in the House of Representatives who could have turned the noble instrument into a deadly weapon and beaten some congressmen and women stoutly round the head.
Fall out from the plan is far and wide and post decision press conferences devolved into a partisan political slanging match which showed everyone’s true colours. As Speaker Nancy Pelosi stated however ‘the crisis is still here’. From a currency point of view not much has changed overnight; any weak feeling towards the US economy has been nixed by moves into US government debt. Such is the stampede to security it seems that investors are looking a simple return of their money as supposed to a return on the money in light of recent bank failures.
In the absence of a ‘bail-out’ package from the US global markets will continue to remain very skittish and traders will more than likely seize on rumour, gossip and hearsay to compound whipsaw. Dollar resilience may be tested in the coming days however as markets are starting to price in a 25bps cut by the Federal Reserve for the end of October as Ben Bernanke tries to limit the amount of destruction that this ‘credit quake’ is causing on Main St. as well as Wall St.
Trade of the Week
This week’s “Trade of the week” is much simpler than last week’s, and also involves paying a premium unlike last week’s. Our client paid a premium of 1.5% upfront which gave them the right to buy Euro’s at 1.20 in August 2009. On expiry (August 2009) if the rate is lower than 1.20 our client will have the right to buy at 1.20 (better than market price) just as a forward contract would work. However if the rate is higher than 1.20 he can simply buy at spot. Our client’s view was that GBPEUR will not go higher than 1.35 so simply “capped” the upside potential. Therefore if the rate is above 1.35 they will simply receive 1.35, by capping the upside the client saved 0.3% on the premium.
The Week Ahead
The week’s news will no doubt be dominated by progress of the TARP however we also have a litany of tier 1 pieces of data. The ECB announce their rate decision on Thursday with a hold being the consensus view, Nonfarm payrolls numbers for the US are also due this week and could add more volatility to the melting pot.
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Please feel free to contact me (jeremy.cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our: Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.
Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.
Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.
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