What’s Going On in the FX Markets Today?

January 9, 2008

- British Pound continues to sell off as markets price in 60% chance of Bank of England Rate cut

- Australian dollar continues to rally as gold prices hit a record high of $890 oz and retail sales increase more than expected

- Euro is selling off because retail sales and industrial production were both MUCH weaker than expected

- In the US, new problems in housing > KB Home posted a Q4 loss 9x larger than market expectations

- Clinton and McCain win New Hampshire primaries

- Only thing going on in the US today is a speech by Fed President Poole

What is his recent take on the markets?

St. Louis Fed President Poole’s comments, Aug 14, 2007:

“It’s premature to say this upset in the market is changing the course
of the economy in any fundamental way.”

“If the Federal Reserve were to act when it turns out there is no impact,
then clearly the market would say these guys really don’t have the intelligence
they need to have a policy actually based on solid evidence.”

As you can see in the table below, rate cut expectations continue to rise. The market is now pricing in a 76% probability of a 50bp rate cut.

Posted in Australian Dollar, British Pound, Fed Rate Cut Expectations, euro