It’s taking off…

The Bank of England cut rates today, and the Pound soared. A dedicated bunch of Forex Analysts have been claiming since the end of last year that the sell-off of the British Currency against the Dollar was overdone. The idea is that all the Pound needs is an excuse to start to gain on Dollar and, Voila, up we go.

That’s the thing about upheavals. They mess everything up. It used to be that if the Central Bank of a given Country cut their interest rates, the value of the Currency would decrease. In the case of the US for instance, you wouldn’t stand to gain much as an Investor if you purchased US based items (one way or the other, buying the dollar) if the Interest rates in the US are low. All that’s gone in a climate of fear such as we have now. Now people are worried about which currency is best to invest their money. They’ll go for currencies where the Powers-that-be seem to be doing more to ensure that their Economies get out of this rut faster. What’s an example of doing more? Cutting interest rates…aggressively. This will should help stimulate the Economies. Thus people are more comfortable investing. It can turn around though. For instance, if the rates are cut, but not enough, the opposite could happen and the everyone could fly away. Care has to be taken.

The Euro has not been so lucky in the last couple of days. Everyone still feels like the European Central Bank is unwilling to do enough (i.e. cut rates enough) to stimulate the European Economy. We will need things to go really well in the Equity Markets for the Euro to gain on the Dollar. We will be watching the Jobless Claims numbers out of the US. If they are worse than expected, then people will assume that the Economy here is not getting any better. The Dollar and Japanese yen would rise under such circumstances.

I am not sure about the Pound though. It just seems to want to go back up against the Dollar. You know, to teach it a lesson.

Happy Trading