Bank of UK to lower rates

The Central Bank of the UK will likely lower interest rates at its next meeting, following the lead of the Fed. The most recent British economic data indicated that inflation has fallen to its lowest level in over a year.  Moreover, UK (and European for that matter) monetary policy prioritizes price stability over employment, by unofficially targeting an inflation benchmark.  Thus, without regard to economic growth, the Bank of UK will adjust interest rates accordingly.  While the Pound-Dollar exchange rate is less sensitive to relative interest rates, the Pound has already fallen against the Euro, since the two countries compete over foreign capital.  Bloomberg News reports:

"The move down is probably going to continue. Sterling will remain under pressure. If any major central bank is going to emulate the Fed and cut rates, it’s going to be the BOE.” 

Read More: U.K. Pound Falls for Third Week Against Euro on Rate Cut Views

Adjusting to Life at Parity

Over the last five years, the Canadian Dollar has slowly climbed to parity against the USD, finally reaching the mythical 1:1 exchange rate last week. Canadian shoppers and
American tourists have taken notice, gradually adjusting their behavior in accordance wit their changing purchasing power. For many Canadians, this has translated into more frequent shopping trips across the border, whether for gasoline or for clothing. For Americans, this has resulted in a decline in the number of tourists visiting Canada. It is also slowly redefining the US-Canada trade dynamic. However, as Canada has become the United States’ largest supplier of oil, it is likely Canada that will
benefit most in this relationship. The New York Times reports:

The weakness of the American dollar worries some Canadian investors as well as businesses that rely on American customers.

Read More: Currency Parity Brings Canadian Shoppers South

Adjusting to Life at Parity

Over the last five years, the Canadian Dollar has slowly climbed to parity against the USD, finally reaching the mythical 1:1 exchange rate last week. Canadian shoppers and
American tourists have taken notice, gradually adjusting their behavior in accordance wit their changing purchasing power. For many Canadians, this has translated into more frequent shopping trips across the border, whether for gasoline or for clothing. For Americans, this has resulted in a decline in the number of tourists visiting Canada. It is also slowly redefining the US-Canada trade dynamic. However, as Canada has become the United States’ largest supplier of oil, it is likely Canada that will
benefit most in this relationship. The New York Times reports:

The weakness of the American dollar worries some Canadian investors as well as businesses that rely on American customers.

Read More: Currency Parity Brings Canadian Shoppers South

Canadian Dollar Nears Parity

With its continued strong performance against its neighbor to the south, the Canadian Dollar is almost defying logic, having jumped to 99cents against the USD in a matter of days. In purchasing power parity terms, the Loony is already among the most
expensive in the world.  However, achieving parity (i.e. an exchange rate of 1:1) has a psychological value that can’t be cast in economic terms. Plus, it doesn’t hurt that high commodity prices have helped Canada to maintain years of strong growth and become America’s largest trading partner in process.  And after the Fed chopped 50 basis points off of the US Federal Funds Rate, the Canada-US interest rate differential is virtually non-existent. One commentator thinks a 1:1 exchange could provide a basis for more economic cooperation between the two nations.  The Globe and Mail reports:

“Parity is a very normalized level. Our [US and Canada] economies have become so closely intertwined that I think down the road what you’re thinking about is more of a North American bloc.”

Read More: A call for parity doesn’t look so loony now

Commentary: How far will the Dollar Drop?

When the US Dollar eclipsed its previous record low against the Euro last week, commentators immediately began painting doomsday scenarios for the beleaguered currency. On paper, the argument for a continued decline in the Dollar is quite strong, due to a sagging economy, surging current account deficit, the prospect of lower interest rates and turmoil in US capital markets. But, in practice, the Dollar remains the world’s de facto reserve currency, which begs the question: “how much-if at all-will the Dollar decline?”

Commentary: How far will the Dollar Drop?

When the US Dollar eclipsed its previous record low against the Euro last week, commentators immediately began painting doomsday scenarios for the beleaguered currency. On paper, the argument for a continued decline in the Dollar is quite strong, due to a sagging economy, surging current account deficit, the prospect of lower interest rates and turmoil in US capital markets. But, in practice, the Dollar remains the world’s de facto reserve currency, which begs the question: “how much-if at all-will the Dollar decline?”

Trade data supports Yuan appreciation

That the balance of trade between the US and China is becoming more and more lopsided in favor of China should come as no surprise to anyone.  In fact, economists yawned when the August trade data revealed a 33% jump in the Chinese trade surplus.  As a result, many are beginning to argue that China can allow the Yuan to appreciate at a faster pace against the Dollar, since it is obvious that China’s export sector will not be materially affected by a stronger Yuan.  In addition, China now exports more goods and services to the EU than to America, yet another statistic which supports the notion that China can allow its currency to appreciate against the Dollar (the implication here being that the Euro-Yuan exchange rate should be more

Trade data supports Yuan appreciation

That the balance of trade between the US and China is becoming more and more lopsided in favor of China should come as no surprise to anyone.  In fact, economists yawned when the August trade data revealed a 33% jump in the Chinese trade surplus.  As a result, many are beginning to argue that China can allow the Yuan to appreciate at a faster pace against the Dollar, since it is obvious that China’s export sector will not be materially affected by a stronger Yuan.  In addition,

US Job Slump Causes Dollar To Fall

August reports show that the US lost 4000 jobs in one month. The biggest employment slump in several years, it appears that problems with the subprime market are affecting more people than ever. The dollar fell to a 30-day low after these reports went public. According to Reuters:

The euro vaulted to a one-month high of $1.3768 <EUR=> after the report before easing to $1.3751, up 0.5 percent. The dollar was down 0.8 percent at 114.42 yen <JPY=>, near a session low of 114.31 yen.

Read more: Dollar tumbles as August U.S. payrolls contract

Canada Going Strong, Currency Gaining

Interest rates in Canada remained at 4.5 percent today, resulting in a gain for the Canadian dollar. A statement made by the Bank of Canada showed that the nation’s economy is doing better than expected. Amid credit problems from the neighboring US, it seems Canada remains somewhat unscathed. Forbes reports:

‘Canadian bank traders see little in the BoC minutes to suggest that future rate hikes are in the works, after today’s ‘no change’ decision,’ said Peter Wadkins at Thomson IFR Markets.

Read more: Canadian dollar gains slightly after BoC decision