Which Central Banks are Worried About Their Currencies? Not the Fed!

Kathy Liem of GFT Forex says that the Fed is not worried. However, other central bankers across the globe are starting to get"fidgety" while "traders and investors are on the lookout for intervention".

She has some very good points, many of which we have discussed here, but some are new. A stronger currency has the similar effect on an economy as a rate hike but the difference is that central banks control the timing - not foreign exchange fluctuations. She says that a stronger currency can wipe out months of work.

Although the U.S. dollar has rebounded (as per our psots on the G20 meeting), "we may not see a long term bottom in the greenback unless one of the major central banks step in and either verbally or physically intervene in their currencies".

So which Central Banks Are Worried About their Currencies?



Switzerland, U.K, and Canada are very worried. Not worried are Australia, and amazingly, the U.S.

Canada

Marc Carney, Bank of Canada governor, just said so today in Victoria, B.C. He reiterated his statements that he may have to do quantitative easing to drop the value of the Canadian dollar.

U.S.A.

The U.S is very happy to lower the dollar in order to export more, and import inflation to counteract the current deflation threats. Ms. Liem says "the Fed is basking in dollar weakness" as the plunge in commodity prices has reduced inflation pressures, as well as making foreign earnings of U.S. multinational corporations appear larger, which could cause great earnings in the third quarter".

There is your stock market rally - at least until the end of Q3 2009.

She says that statements by the Fed that they support a strong currency, are nothing more than lip service.

Australia.

Australia has benefitted from the U.S. recovery, stimulus in China and the previous rise in commodity prices. "Based upon this comments from Governor Stevens, the RBA should be the first major central bank to raise interest rates".

U.K.

United Kingdom – The Bank of England is the "probably the most dovish". The BoE has "dollar envy". They love a weak currency.

Switzerland

Swiss National Bank is the most worried about their currency as in recent weeks, the Franc has appreciated significantly against the U.S. dollar. Last week, the SNB said that further franc strength is "unacceptable".