Predicting the future is the name of the foreign exchange game – but it seems most so-called experts don’t have much of an idea what they are talking about.
Pundits hang on every word of central bankers trying to divine a deeper meaning from their utterances.
The result is currency exchange rates are bobbing up and down with no rhyme or reason.
Just look at the panic Federal Reserve chairman Ben Bernanke triggered when he suggested economic stimulus – read quantitative easing (QE) – might be phased out next year if the US economy pulls out of the doldrums.
The comments set off a chain reaction that wiped billions off the value of companies around the world as stock markets dived.
Awash with rumour
So Bernanke announced he had changed his mind and QE would continue. Cue a rise in the market and a strengthening of the already mighty dollar.
In Bernanke’s wake came the Bank of England and the European Central Bank (ECB).
Rather than leaving the markets awash with rumour, they announced their interest rate intentions and monetary policy aims in advance.
Both agreed with Bernanke that more stimulus was needed to keep the British and European economies afloat and that interest rates and the injection of funds would be there for as long as needed.
The point of these remarks is to take the volatility out of currency exchange rates and stock markets.
At the moment, if someone coughs in Washington, London or Bonn, a financial tsunami rolls around the world.
Currency speculation
The central banks want to pull the economic strings rather than dance to the tune of the markets.
“The central banks want calm and an ordered world, not chaos every time some makes an off-the-cuff remark,” said a spokesman for Smart Currency Exchange. “They don’t want the exchange rate going up and down all the time.”
The talk in the markets is about how speculate on currencies to make money.
Commentators have told magazine Investment Week that the Pound is expected to slide another 10 cents against the US dollar – down to around the $1.40 mark.
The Australian Dollar is also a target for the FX money men. The talk is the currency is overvalued against the US dollar and will weaken with a change of government and a slowdown in Asia Pacific rim economies that rely on Australia’s raw materials to drive their factories.
