Today is the last trading day of the month and there is a holiday
feeling about as yesterday was Thanksgiving in the USA .
So it is appropriate to attempt to place some context on where Foreign
Exchange sits at present.
While we attempt to garner some of the benefits from a level of
diversification, the fact remains that the fate of the US dollar and, to a
lesser extent, the Euro will have ramifications for other currency units. Gold
is a commodity, strictly speaking, but it sits well alongside currencies as it
has been the refuge of those who felt that the US dollar, the world’s reserve
currency, was under threat of severe inflation. That has not taken place, and
now the ostensible driver of that those inflation fears, Quantitative Easing in
the US ,
has been signalled to come to an end. The only real question is when this will
happen.
Yesterday the ECB came out with a warning that the US decision to
scale back stimulus, in other words to taper QE, is a potential threat to the
Euro economy. Does this mean that the Euro zone will take measures of its own
to counter this perceived threat? Time will tell.
Separately, there are other economies that have seen the attraction of a
weaker currency. Up front and centre here is Japan , and the USDJPY exchange rate
is showing the effects. The government of Australia has let it be known that
it, too, would prefer a cheaper Aussie. On the other hand the ECB seems content
to have a stronger Euro. The story here is complicated by the very strong
German economy, which sits astride the Euro zone and maintains a balance of
trade that, some economists believe, is not in the best interests of its
co-members of the Single currency unit.
There will no doubt be interesting times ahead. Our objective is, as
always, to profit from all of this.
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