The Great Debate UK

Development of the risk trade

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- Jane Foley is research director at Forex.com. The opinions expressed are her own.-

A willingness to differentiate between risk on a country or at a regional level is an important part of the repair process in financial markets.

Credit worthiness is at the core of any assessment of risk and naturally credit worthiness can sort “risk” into a hierarchy which should be instrumental to the pricing of assets and currencies.

At the start of this year, fear and uncertainly herded investors in and out of “risky” investments fairly indiscriminately. Even though the overall rally in risk since the spring suggests that broad based fear has been dispersing, strong correlations between some of these “risky” assets persist.

Gold rally could start to tire

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JaneFoley.JPGSpot gold prices are up over 40 percent year on year.  Yet, according to the World Gold Council, demand for gold in the third quarter of 2009, dropped by 34 percent year on year.  Of course, demand in the third quarter of 2008 was exceptionally high due to the financial crisis. As well, relative to the third quarter average of the five years to 2007, demand for gold in Q3 2009 was down 4 percent.

When confronted with the ferocity of the rally in gold, the fact that the third quarter demand for gold was below the seasonal average is surprising. The dynamic between price and demand suggests some fall in supply perhaps led by increased hoarding.

Risk trade yet to show signs of fatigue

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JaneFoley.JPG-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

A month or so ago, there was a lot of talk that risk appetite would be pared back over the coming months. This talk was built around relatively cautious expectations for economic growth in most of the G-10 next year.

Asia’s exchange rates set for centre stage

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JaneFoley.JPG-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

November meetings of leaders from the Group of 20 industrialized nations may not have had exchange rates on the agenda, but the notes prepared by the International Monetary Fund included some meaty foreign exchange references.

Slow growth and deficit stem lure of dollar

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JaneFoley.JPG-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

The U.S. dollar may have found support this week but the USD index remains at a 14-month low.

Whose money will prevail as reserve currency?

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-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

If there is one foreign exchange story that will run and run it is the one about the U.S. dollar (USD) and its future as the world’s dominant reserve currency.  The discussions on this topic have at least brought some agreement, namely that there is no clear alternative and therefore there can be no quick fix change.  That said, much uncertainty remains as to what can, if anything, eventually replace the dollar.

Re-entry dilemma for G20 ministers

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copeland1- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

As the G20 ministers gather for their meeting this week, there should be no doubt about the item at the top of the agenda: the re-entry problem. At what point should the expansionary monetary and fiscal policy of the past year be reversed? And, if the answer is “not yet”, how soon does the re-entry plan need to be announced?

Wrong, wrong and wrong again – a response to “Latvia: let the lat go”

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morten-hansen1- Morten Hansen is a guest columnist, the views expressed are his own. He is head of the economics department at the Stockholm School of Economics in Riga -

The debate for or against a Latvian fixed exchange rate rages on. There are good pieces of analyses on both sides of the debate, there are less good ones, there are mediocre ones – and then there is Jonathan Ford’s “Latvia: let the lat go” from 29 July.

Latvia: Apocalypse (not quite) now . . .

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Morten Hansen

-Morten Hansen is head of the economics department at the Stockholm School of Economics in Riga. The opinions expressed are his own.-

Latvia, with its 18 percent year-on-year economic decline, ruthless budget cuts to meet the demands stated by the IMF-EU bailout package and recurring rumours of devaluation, may be the most written about country in the world right now, at least on a per capita basis.

Latvia needs more help to preserve euro peg

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paul-taylorLatvia needs more support from the European Union if it is to preserve its currency peg to the euro and avert a chain reaction of devaluations and bankruptcies around the Baltic and beyond.

The Latvian government and central bank are taking extreme measures to maintain a currency board linking the lat with the single European currency, hoping to steer the former Soviet republic into the safe haven of the euro zone in 2012.

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