I'm Back

Hi there. Back after a long hitaus. Well, a lot of water has flown under the bridge since I last wrote. The US markets got hit the wrong way and almost every other global bank was hit in the subprime onslaught. Markets world over tumbled and The Fed, worried of its impact on the economy (it has started showing, you see....) has cut the Fed rate in a hurry it may seem. But hold....... here is another news trickling in today and I quote "The Federal Reserve may push interest rates below the pace of inflation this year to avert the first simultaneous decline in U.S. household wealth and income since 1974." unquote. And this seems more real given the fact that real disposable income grew at a 2.1 percent annual pace in November, the slowest in 16 months, as higher food and energy costs eroded paychecks. Home prices in 20 U.S. metropolitan areas fell 6.1 percent in October from a year earlier, the most in at least six years.

And now another twist in the tale. With the Fed rates spiralling downwards, and others sticking to their Interest rates, is it possible for the US Dollar to become a currency for the carry? I dont think so, given the fact that there is the Yen, still there holding on to the crown. And remember, the USD didnt become the Carry currency even when the Fed cut the rate down to 1% in 2001 . But yes, for all those who are having exposures in the USD, it becomes more and more lucrative now to look up to other currencies like the Pound and the Euro. And therein arises another scenario. With the recent cuts in Interest rates by the Fed and the possibility of it cutting its 3.5 percent target rate for overnight lending between banks by as much as a half-percentage point tomorrow, it is likely that most other economies will follow suit, although at a slower pace. This does offer some disparity but given the high Trade stakes in the USD, the market would definately avoid it from becoming the carry currency.

Given the above, I would presume the green back to maintain a level of 103 to 108 against the Yen (with a bias towards 100 though beating the 103 mark may be difficult) while weakening against the Euro to near 1.49 in the very near future.