US$ Carry Trade Intensifies, Pound Sterling Advances on BoE Comments, Fed’s Yellen’s Comments Add to US$ Decline, Mortgage Apps.Decline
Posted By Bret Rosenthal, October 21st, 2009 : Permalink
Well, apparently my conclusions are sound. Today the U.S.$ price is down more than 3/4% making a new low and news out of the UK is leading the charge. The Pound Sterling has gained 5% this week alone vs. the U.S.$. Today’s comments out of the BoE speak directly to the points I highlighted yesterday….
Pound up as BoE shows no asset-purchase split – WSJ
The Wall Street Journal reports sterling moved sharply higher after the Bank of England released the minutes of its October monetary policy meeting. In the minutes, it was clear that the decision to leave the scale of asset purchases on hold at 175 bln pounds was unanimous, relieving suspicions that some policymakers at the BoE had wanted a further boost.
The currency had already started the day with a positive tone, after BOE Governor Mervyn King warned consumers in an overnight speech in Edinburgh to be prepared for rising interest rates in future. That pushed the pound up from the $1.64 area at the outset of European trading hours. Now the October BOE minutes have added fuel to that move, shoving sterling well above $1.65. Sterling has recovered a good deal of lost ground of late after a recent drubbing. It has climbed by over 5% against the struggling U.S. dollar in the past week. The euro has sunk by a more modest 3% against the pound over the same period. Strength reflects a sense that the currency’s decline seen over the previous two months was overdone, prompting some bears to bail out of negative bets.
…Meanwhile, news out of the Fed here in the U.S. confirms the Fed’s commitment to lower rates for “an extended period.” This potent combination of diverging Central bank rate direction is the exact recipe for the lighter fluid I spoke of yesterday and the impact is felt immediately in the Forex market….
Reuters reports the time for the U.S. Federal Reserve to start pulling back its extensive support for the economy is not close at hand and policymakers have time to decide what sequence of steps they will take, San Francisco Fed President Janet Yellen said on Tuesday. “We have used the language of an extended period,” Yellen, a voting member of the Federal Open Market Committee, told reporters after a Fed conference. “This is not something I anticipate happening over the next several months. Certainly not.”
As this saga unfolds our investment strategy remains the same. Long precious metals and the commodity space. We would expect a continued equity market advance and would focus on investments in other countries where the currency and the growth rates outperform the USA. For a complete list of companies that we feel offer significant potential, please visit http://www.rosenthalcapital.com/ and view the Letters and Articles page.
My next post will cover three major issues I feel could derail this equity market rally. Until then remember, “It takes as much energy to wish as it does to plan.” Eleanor Roosevelt
…Of course, the reason Yellen can make the above comments stems from the ongoing USA real estate problem. In fact, today data released about mortgages continues to cause concern, “MBA Mortgage Applications -13.7% vs -1.8% Prior.”
I wrote in yesterday’s post, “The U.S. $ carry trade will gain steam if European economic recovery/inflation outpaces the U.S. and leads to rate increases”.
Tags: boe, carry trade, fed's yellen, investment strategy, mortgage applications, pound sterling, US$