Ben Bernanke surprised everybody with a hike of the Fed’s discount rate. The response was immediate and shook all the markets. Some currencies weathered the storm, while others are at critical spots. Here’s a quick damage control.
The Federal Reserve only raised the special discount rates for banks, and said that businesses and households won’t feel it. Apart from the discount rate, they also made further retreats from special measures. In various speeches, Fed officials downplayed the move and said that it won’t affect the Federal Funds Rate.
If this move was so minor, why was it released after the US stock markets were closed? Well, they knew that this would have a strong impact. With this surprising news events, we get to see the nature of the forex markets – constantly moving, 24 hours a day.
OK, let’s review the impact:
- EUR/USD collapsed to a 9 month low at 1.3444, about 20 pips above the important support line of 1.3423 that it has been eyeing for a few weeks. Very vulnerable.
- GBP/USD also fell to the 1.5350 line and flirted below it. After being hit by bad employment figures, the Pound got another blow from a big drop in retail sales. Currently this is the most vulnerable currency.
- USD/JPY: Peaking at 92.08, the yen lost some ground but it has seen these levels just one month ago. It will probably overcome it. Low vulnerability.
- USD/CHF reached 1.09, the highest in 6 months. This is a safe distance from the initial resistance line at 1.0950 which is followed by 1.1030. Medium vulnerability.
- USD/CAD: The loonie had a good week and almost broke the important 1.04 line. This move sent it back up, but the it has room to move. Low vulnerability.
- AUD/USD: Although Australia saw many rate hikes and is expected to see more according to a fresh speech from Glenn Stevens, the Aussie fell below 0.89 and was significantly hit by Bernanke. Gaining back will be slow. Medium vulnerability.
- NZD/USD: Similar to the Aussie, the kiwi also enjoys a high rate was significantly hit and fell below 0.70. Medium Vulnerability.
American consumer prices will be released soon, and this might hint about the real rate: Federal Funds Rate. If inflation picks up, Bernanke has a good reason to raise the rates.
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