Thursday November 5, 2009 - 16:53:11 GMT
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Cinneas.com - blog.cinneas.com
UK and EUR Betterâ€¦ US Meanders.
The weaker GBP/USD is working for the UK, as they today announced they would slow their pace of bond purchases. The BOE announcement that they would raise their bond-purchase plan by 25 Bio GBP to 200 Bio GBP came as a relief to the market as it was less-than-expected. This saw a move higher in the GBP/USD and a smaller move lower in the EUR/GBP.
We note that Central Banks are now more prepared to use the term â€˜positive growthâ€™ recently. With that term comes the ultimate need to reduce stimulus in the market. Yesterday the US Fed kept their statement unchanged. The US is not ready to reduce its stimulus any time soon. The only significant change was their view to reduce asset purchases. Something that Meredith Whitney picked up on as being a negative for banks as it could result in greater write-downs going forward.
The ECB also chimed in this morning. They have thrown a bone to the market by saying their stimulus measures will be phased out gradually over time.
So what does all this mean? Well it means things are better in the UK and EUR, but still meandering along in the US in the minds of Central Bankers. Thus in the Central Bank view a continued move higher in the carry trade, and so a weakening of the USD continues to be justified by the fundamentals.
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