The Conditions for Intervention

The US dollar appears to have become a one-way bet and with important psychological levels having been approached and official rhetoric having been ratcheted up a notch, it may be prudent to consider under what conditions central bank intervention is likely.

Dollar to Fall, but Demise Exaggerated

The US dollar is likely to continue to fall as the year winds down, but reports of its demise have been grossly exaggerated.

News reports this week claiming that Brazil’s super-model Gisele Bundchan demanded compensation in euros rather than dollars, hedge fund manager Jim Rogers announcing he was selling all his dollars, buying yuan and moving to China, and an official in China’s largely impotent legislative branch, the National People’s Congress, said China would diversify reserves out of weak currencies and into strong ones dealt the greenback a body blow.

A Yen for Stocks

A recent pattern has become evident to currency and equity traders. The stock market appears to trade opposite of the Japanese yen. When the yen strengthens, stocks weaken and vice versa. As compelling as the patterns appear, we caution against putting much emphasis on it or confusing correlation with cause and effect.

Foreign Policy Association: William K. Tell Lecture

How Appropriate is Central Bank Policy

The FOMC and ECB are often criticized for being either too accommodative or not accommodative enough. The Fed funds target rate has been cut by 75bp and the more balanced outlook from the recent FOMC meeting initially prompted talk that the end of the mini-easing cycle was at hand. However, renewed concerns about the soundness of financial institutions prompted talk of further cuts. Meanwhile, in the eurozone, credit conditions have already caused the market to tighten for the ECB with euribor rates rising above the official refi rate. The ECB remains hawkish but we expect the ECB to remain on hold for an extended period.