samuelhogg
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What is the single most important economic factor that drives currency moves?
All answers appreciated.
All answers appreciated.
Well Samuel,
Many things affect the curreny moves. But, all these different things, such as NFP, consumer confidence, etc., ultimately point toward interest rate moves by the Fed. In other words, people gauge all the economic numbers in order to make a decision about the expected interest rates. Hence, I would say, the single most important factor driving the dollar is interest rate expectations and moves. Just think about why the dollar has risen from 1.36 to 1.20 currently against the Euro since the start of 2005. And also, why the cable has fallen from 1.95 to 1.75 now?.....!!!!
Kind regards....
Many things affect the curreny moves. But, all these different things, such as NFP, consumer confidence, etc., ultimately point toward interest rate moves by the Fed. In other words, people gauge all the economic numbers in order to make a decision about the expected interest rates. Hence, I would say, the single most important factor driving the dollar is interest rate expectations and moves. Just think about why the dollar has risen from 1.36 to 1.20 currently against the Euro since the start of 2005. And also, why the cable has fallen from 1.95 to 1.75 now?.....!!!!
Kind regards....
Has the interest differential between the euro and dollar changed much in 2005? Fed funds has increased but the money market rates were already discounting this in 04 and for most of 05 the T bond yield in the states has been falling. In my view the main reason for the dollar rally this year has been because the market got too short of dollars and the US act where US companies can repatriate foreign earnings with no adverse tax implications, for a short period of time. Re cable - I agree completely this year although that is to do with a huge change in expectation for £ rates rather than US.
Over very short periods of time though ie the day figures are released etc then I tend to agree that the interest rate is the key.
Over very short periods of time though ie the day figures are released etc then I tend to agree that the interest rate is the key.
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samuelhogg
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Sorry GJ if you found it a rather simplistic question.
I came accross this article 'What moves the currency market' from the currencytrademag
http://www.currencytradermag.com/pdf/lien_currency.pdf and wondered if the importance of different economic data had change over time for FX dealers as seen in table 2.
I came accross this article 'What moves the currency market' from the currencytrademag
http://www.currencytradermag.com/pdf/lien_currency.pdf and wondered if the importance of different economic data had change over time for FX dealers as seen in table 2.
Well JP1966,
The Dollar has got strong across the board this year. Maybe the cable has moved more due to decreasing interest rate expectations because of a slowing economy and a cooling housing market in the UK. And yes! the interest rate differential between the euro and the dollar has gone a lot in the latter's favour. The fed funds rate in December 2004 was 2% - the same as that of the ECB. Now, it is 3.25%. Hence, the differential has risen by 62.5%, using the euro's 2% as the base.
I do disagree on your point about the Treasury yields. Even Mr. Greenspan calls the yield curve a conundrum!
Well, if you say that the main reason for the dollar's move this year was because the market was too short of dollars, you are in effect saying that the market had oversold dollars. That is a purely technical phenomena and the subsequent correction would unlikely last for over half a year and result in a 1600 - 2000 pip movement.
Kind Regards.....
The Dollar has got strong across the board this year. Maybe the cable has moved more due to decreasing interest rate expectations because of a slowing economy and a cooling housing market in the UK. And yes! the interest rate differential between the euro and the dollar has gone a lot in the latter's favour. The fed funds rate in December 2004 was 2% - the same as that of the ECB. Now, it is 3.25%. Hence, the differential has risen by 62.5%, using the euro's 2% as the base.
I do disagree on your point about the Treasury yields. Even Mr. Greenspan calls the yield curve a conundrum!
Well, if you say that the main reason for the dollar's move this year was because the market was too short of dollars, you are in effect saying that the market had oversold dollars. That is a purely technical phenomena and the subsequent correction would unlikely last for over half a year and result in a 1600 - 2000 pip movement.
Kind Regards.....
We can agree to differ (that is why there is a market after all) but there has been no big change i market expectations on rates in the US this year. On short term rates of course Fed Funds has increased but market rates have been pretty stableas they were discounting hikes to 4% in 2004. As for the T bond you make my point for me. Greenspan has says it is a conundrum for the very reason that US yields have not increased despite the hike in Fed Funds.
For what it is worth I think there will be a big fall in the US once fimrs have stopped repatriating foreign profits late this year.
For what it is worth I think there will be a big fall in the US once fimrs have stopped repatriating foreign profits late this year.
hi,
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Bad idea - most of the time. As today: First a spike - and then the moves goes the other way. It's much better to buy the rebound with a tight stop (I use only 10 pips).
But you can buy day options, which covers both ways. IG Index has those options.
But you can buy day options, which covers both ways. IG Index has those options.
