The Fed Makes the Forex Flutter

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What is it about the U.S. Federal Reserve Bank that makes the Forex system flutter like a young girls eyelashes when a good looking young man passes by?  I’m no Forex expert (thank you for reading anyway), but this monthly encounter between the world and Ben Bernanke is a lot like young love.  It has more to do with the overwhelming allure of anticipation than the disappointment of the actual encounter when and if it ever takes place.

Once again, the world waited for the Fed Head to pass by, in the hopes that he might smile or give some other indication of his intentions.  But, alas, he came as expected yesterday, but seemed either unable or unwilling to divulge whether or not he intends to take the world to the senior prom.

The minutes of the Fed’s July meeting were released yesterday.  Anticipation fueled speculation.  Then, when the report said nothing substantial regarding the Fed’s intention, miscalculation turned to reverberation as the world had to do something, even if the Fed had not.

I may not be an expert (But then again, who really is?), but I can see that currencies are fluctuating this morning as the world has returned to speculation.  The dollar has strengthened this morning against the pound (by 0.5%), the euro (0.28%), the yen (1.03%) and the Canadian dollar (0.27%) as the majority of the world seems to generally believe that the Fed will begin to loosen the chains on the U.S. economy to at least some extent in September, although it is evident that the entire Fed board is not fully supportive of the move.

The British pound has not fared so well today, losing ground versus the euro (0.21%), the Hong Kong dollar (0.48%), the Australian dollar (0.61%), the Singapore dollar (0.58), and the Brazilian real (0.69%), whilst gaining ground against the yen (0.48%) and the Swiss franc (0.06%)

In general, the dollar is continuing to strengthen against all major currencies, with what I see as a mild correction as the day comes to a close. The pound has weakening slightly across the board, with the general momentum continuing to be in that direction.

What does it mean?  I’ve already told you that I’m not an expert.  I don’t know.  But I have checked with some experts on the matter and I cannot find a consensus.    For instance, IHS Global Insight says that the Fed will probably not implement a tapering in September, but Barclays predicts that it will.

Mark Lehman of JMP Securities summed it up like I would, saying “People are not convinced about what to do, so you’re susceptible to big, intraday market swings.”

That kind of makes me sound more like an expert after all.

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