Forex Video : Market Reaction to the BoE & ECB Rate Decisions

ACM Advanced Currency Markets Chief Market Analyst Peter Rosenstreich answers questions about the markets reaction to the BoE & ECB Rate Decisions and risk aversion trade.

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Name: Peter Rosenstreich
Position: Chief Market Analyst
Company: AC Markets
Date: 06/02/09
Time: 07:21 CET
Channel: CNBC Europe
Duration: 3 minutes 38 Seconds
Interview with Peter Rosenstreich

Martin Baccardax

Time to take a look at the foreign exchange markets this morning. A bit of range-bound, although we’re
looking at a ninety handle on the Yen which we haven’t seen in a couple of days now. I’m curious that we
had a bit of a rebound on Sterling, actually, last night despite the deep rate cuts. In point of fact, we saw
the Euro a little bit weaker after the ECB decided to hold pat. Peter Rosenstreich is a Chief Market
Analyst at Advanced Currency Markets. Peter, good morning; thanks for joining us. It seems that theme,
Peter, is still with us in the marketplace where central banks and currencies are rewarded for being
simulative and maybe punished for being conservative. Would you agree with that?

Peter Rosenstreich

I agree 100%. I think that that’s exactly what we saw in the price action yesterday. The ECB did a good
job at convincing the market that beginning their asset programme in terms of buying bad assets, the
Pound, the Sterling, did well. On the flip-side, the ECB was very dovish; it was non-committal in terms of
whether Trichet was going to set up a bad bank or exactly how aggressive they were going to move in
fiscal monetary stimulus. Obviously, the Euro was punished for that, so I think that’s exactly what we’re
seeing in the marketplace right now.

Martin Baccardax

Peter, these numbers from Toyota we were dissecting through, and clearly from an operating loss level
it’s quite arresting, but I wonder if there are any spill-over implications for the Dollar? By that, I mean
Toyota’s going to have, clearly, a drag on the Nikkei, there’s going to be concerns maybe about deeper
stimulus packages from the Japanese government, maybe some liquidation of treasury positions as the
older Japanese try to monetise as they head into retirement. That might predicate some treasury sales
and, therefore, dollar weakness. I know it’s a long thread, but do you – could you stretch that?

Peter Rosenstreich

Well, I don’t think it’s a long thread at all. I think it’s very much of an entrenched theme in the
marketplace right now. You look at News Corp, you look at Toyota: they’re – not only are they
disappointing earnings but well below the analysts’ forecasts. If we keep on showing earnings much
lower than forecasts, obviously, PE ratios have to adjust, the equity markets need to sell off another
round of weakness, we expect. That’s all going to go into Dollar strength as the risk aversion trade
comes back into play.

Louisa Bojesen

Peter, good morning; it’s Louisa Bojesen. The Euro and the Pound yesterday in focus after the various
interest rate decisions. Would you anticipate a lot more Euro weakness on market expectations that we
could be looking at another rate cut by the ECB by 50 basis points come March?

Peter Rosenstreich

Yes, and I think it’s a portion of the rate cut, but again, going right back to what we discussed earlier, it’s
the need of the market to see a very aggressive central bank. The Fed and the Treasury: the market has
accepted the fact that they’re moving very aggressively, and that’s supporting the Dollar. The Euro: not
so much, so we see the Euro/Pound trade continued back down below the 88.66 level without a problem.
Again, I think that’s the main trade in the market right now: the confidence level of the central banks and
what, exactly, or how aggressively they’re going to move in the marketplace.

Geoff Cutmore

Peter, you reckon there’s anything to the rumour that there could be a suspension of the fair accounting
rules next week?

Peter Rosenstreich

Well, you know, that would really be just off the cuff speculation; it’s not my area of expertise. I think
when we start hearing rumours like this, especially when markets are uncertain and volatile as they are,
we need to take it with a pinch of salt. That’s what I’m going to do at this point.

Geoff Cutmore

Okay, Peter. Thank you for that. Peter Rosenstreich, Chief Market Analyst at Advanced Currency
markets.