What’s Behind the Big Moves in Currencies?

There has been a lot of volatility in the foreign exchange market this morning, driving currencies to historic levels:

GBP/USD – 23 Year Low
USD/JPY – 13 Year Low
NZD/USD – 6 Year Low
EUR/JPY – 6 Year Low
CAD/JPY – 13 Year Low
GBP/JPY – Record Low
NZD/JPY – 8 Year Low

The most significant moves have been in the British pound, which fell to a 23 year low against the US dollar and in USD/JPY, which fell to the lowest level in 13 years. Comments from former Fed Chairman Volcker triggered a wave of risk aversion that led to a technical break in the currency market. He said “we are in serious recession, with no end clearly in sight.” Although there is no question that the US economy is in trouble, by saying that there is no end in sight means that there is no hope which coming from the chairman of Obama’s newly formed Economic Recovery Advisory Board is significant. By saying that he does not an end to the recession is certainly not good advice. Treasury Secretary Nominee Geithner expects an Obama economic stimulus plan to be released in the next few weeks but unfortunately Volcker’s comments overshadowed the prospect of a stimulus plan. Yesterday’s sharp sell-off made investors nervous but Volcker’s comments pushed them over the edge.
We are continuing to see flight to safety into the US dollar and Japanese Yen. Investors are looking to hide in the lowest yieldind currencies.

We also had comments from ECB President Trichet and SNB President Hildebrand. Trichet defended the ECB’s monetary policy and said they haven’t decided if 2 percent is the lowest level for rates.

Intervention by Swiss National Bank?

The Swiss franc collapsed after SNB Hildebrand said that the central banks is considering selling francs to halt the currency’s gains. With interest rates already at 0.5 percent, they have no room to ease monetary policy. Therefore they may have to resort to fixed rate currency intervention.



  1. We are in the 1 year 5 months of a 4-year cyclical low, where capital preservation are the first key (usually missed) and then asset acquisition can be ball-parked in accordane with the standard sub-sector recoveries which finally sum to a complete cyclical trend recovery at the 4-year mark. This Kondrieff Cycle analysis was published by TECHNICAL ANALYSIS at the 1-month start of this down cycle and it represents the end of cycle analysis beginning in 1900. The author did not back-adjust but let the cycles fit the data. Given that the author developed such a close correlation at the beginning of the cycle, I give it greater authenticity than I do Paul Volcker, who – like Henry Kissinger – endorses a balance of terror as a tool rather than a fundamental change by other means. The leveraging by high % against trade unions, small business construction contractors, and the general public also caused a temporary collapse in the price of oil produced by then-dominant OPEC but also supported Saddam Hussein in his aggression against Iran. This prolongation of the Baathist dictatorship contributed toward increased complexity in SW Asia and did not produce a solid foundation for our work against the Breshnev Doctrine in Afghanbistan. Paul Volcker is a pessimist who believes that Adam Smith composed WEALTH OF NATIONS in order to further the creation of a super-elsite of the wealthy, an upper class which managed their assets, and a broad class of lower income renters who could barely survive paycheck to paycheck. This, in fact, is the economic bias which dignifies much of what passes for frugality today. The Bidget Balancing Act of 1986-7 terminated Army Intelligence programs on a global basis and the CIA oversight on the post-Breshnev program in Afghanistan. The costs of these two program eliminations are measured as the debits of the past 8 years against those fictitious or transitory cost savings in 1986-90. President Clinton simply compounded the eventual cost by posting essentially fictitious figures to the books throughout hism 8 year tenure by consistently ignoring al-Qaeda attacks on primary US targets. That the American public in large measures have opposed every substantial American military engagement – either prior to commencement of hostilities as in the cases of WWI and WWII – or during these wars – such as the Civil War, Korea, and Vietnam – does not lend substance to the policy of ignoring such attacks until we are verging on disaster. This statement does not rule out diplomacy. Mr. Volcker can best be viewed as a comparative measure in order to better understand the success and failures of his balance of terror against Americans in substantial number so that we may better chart our course for today and tomorrow, while also understanding and viewing with improved clarity our own shortcomings as a people.


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