Posted by Allison on 24 March 2009, 09:39
There is rarely any time in the world of forex where there isn't something really interesting, or important, going on. But the current conditions, it has to be said, are exhilarating. There have probably never been so many opportunities to make money for the prepared, or lose money for the unwary.
In the centre of the maelstrom was, as always, the US Dollar.
By the start of March the USD had lost 18% of its value against a basket of six major currencies over the last 2 years; including the (EUR) Euro and (JPY) Yen.
More on that below, but first the records. Commodities that everyone uses are generally priced in USD and since the USD has decreased in value and demand for the commodities has risen, the price of the commodities has continued to rise.
Two highly significant new records were set in commodity prices: Oil hit record-after-record as it pushed above $110 a barrel. Gold, the currency hedge-bet, hit a record as it pushed up above $1,000 a troy ounce (XAU).
Those records had been on the cards for a while. It was the sort of thing that happens because everyone expects them to happen. $1000 is a fairly arbitrary number. It is significant to us only in that it is a benchmark. Since hitting the record XAU has succumbed to a bout of profit-taking and pulled back. Oil too.
In Japan, another record was announced: Japan's Foreign reserves had hit a record $1.01 trillion USD worth of foreign currency (including gold, US treasuries and the like). Sensible people would point-out that since gold has risen so much, the massive increase in their reserves does not necessarily mean they are on a spending spree at the moment. But it does mean that they could be on a spending spree very soon, just at the time when both the USA and UK need buyers for govt. gilts. If that did happen it could push a massive rebound in those currencies.
On the Spot markets the USD hit record lows against the Euro, with 1 EUR buying more than $1.58 USD towards the end of the month. Not only did the USD fall against the JPY it crashed through the psychologically important 100 Yen barrier and stayed there for a lot of March, pushing as low as 97 at one point.
The GBP pound was a little more stable, but not a lot. The Bank of England decided to keep interest rates on hold, which did help. Even so the GBP would buy you 4 EUR cents less by the end of march at €1.26. and the GBP dipped below the important 200 JPY barrier a couple of times during the month.
Looking forwards the turbulence is set to continue to provide opportunity.