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Name: Peter Rosenstreich
Position: Chief Market Analyst
Company: Advanced Currency Markets
Date: 31/01/08
Time: 10:52 CET
Channel: CNBC Europe
Duration: 4 mins 24 secs
Ross Westgate
Those fresh concerns have turned equity markets negative today. We had a member; after that Fed announcement initially, we had that big rally on Wall Street. It’s all faded away towards the end, and Europe today is next here. Financials are very much in focus, and that has meant that the dollar, although it lost ground after the Fed rate cut, is trying to claw back some of those losses, so dollar/yen going back up to 1.0652. Euro/dollar, that’s just slipped a little bit: 1.4834. Sterling: 1.9867, kind of, actually, where we were this time yesterday on that cross trade, and Euro/yen: just edging a little here at just above 1.58. Joining us for more: Peter Rosenstreich, Chief Market Analyst at ACM, Advanced - in Zurich. Thanks very much, Peter, for joining us. It seems like the dollar’s been very much swayed at the moment by what the stocks are doing in relation to monoline concerns. Where could this take the dollar in the short term?
Peter Rosenstreich
Well, I think in the short term, what we need to do is – there is a lot of activity between yesterday and today, and the dollar basically ended up pretty much flat for the most part. I think that there has been a lot of speculation about where the US GDP is going. We saw that 0.6 number, and then the anticipation for the ISM and nonfarm. Tomorrow is really building on uncertainty on which way the dollar is going to move in the longer term.
Christine Tan
Peter, hi. This is Christine here. Would you say that this liquidity crisis is going to be the catalyst that we will see in a total unwinding of yen carry trades?
Peter Rosenstreich
You know, it is a strong catalyst. Volatility is obviously one of the underlying factors. The increased volatility that we’ve seen just makes the yen carry trades just not at the position that you want to be in right now.
Brian Shactman
Peter, Brian Shactman here in the US. The assumption, of course, was that you get a Fed rate cut and you get the weaker dollar, and then we have a little bit of a bounce back today. Were you surprised in the last 24 hours? Talk about your perspective about how the dollar has reacted to the Fed’s cut.
Peter Rosenstreich
Well, you know, I think probably more specifically, looking at that GDP, the Q1/Q4 number, I think a lot of people rushed in to say ‘Okay, that’s it; this is the first sign that the US is slipping into a recession,’ but on further examination, you need to take a look at exactly what’s going on with, like I said before, the ISM number, which is a great indicator for GDP growth, and the nonfarm payroll which is also, perhaps, the bias is on the up-side, looking at that ADP figure. Putting those into play, you have to start thinking that perhaps the US is not going into a recession and the initial pessimism that we saw in the market might have been overdone. I think that’s what we’re seeing today and we’ll see continue for the next 24 hours, is a dollar sort of gaining on that speculation.
Ross Westgate
Peter, it almost sounds like we might get to a stage where we think, ‘Hey, actually the Fed – there might be, finally, some plaudits for the Fed and for the US government,’ and saying, ‘You know, if they do stave off a recession, we should pat them on the back.’
Peter Rosenstreich
Well, I think that’s far out right now, because right now there’s a lot of second guessing going on by myself and just about everybody else in the market. I think the sudden 1.25 basis point cuts in eight days really stinks of panic. That sort of makes the market second guess exactly how the Fed is viewing what’s going on in the US economy and their outlook on monetary policy. However, at some point, these enormous cuts need to start taking hold, and we’ll start seeing a resurgence in the US economy. At that point, we’ll start saying the Fed did a good job.
Ross Westgate
Peter, very quickly, we had housing data of the UK. Nationwide housing data: falling again, mortgage approvals dropping yesterday; the housing market in the UK is under pressure. What happens to sterling here?
Peter Rosenstreich
You know, I’ve been saying this for quite a while. I think the sterling needs to come down further along with the interest rates. The BOE’s sort of stubbornly holding rates a little bit higher than they need. They need to come down more aggressively, quicker, to follow the Fed’s lead. The way to shore up the UK economy is to do just that, so I think we’re going to see the cable come under some serious pressure in the near future.
Ross Westgate
Peter, thanks for that. Peter Rosenstreich, Chief Market Analyst at ACM. He’s a Giants fan, so we wish you the best with that support in the Superbowl on Sunday. Thanks, Peter.
Peter Rosenstreich
Thank you very much for that.
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