Apr 12th 2012, 16:26 by Buttonwood
FOR all the talk of "currency wars", the foreign exchange markets have been remarkably calm so far in 2012. But as Simon Derrick, the currency analyst at Bank of New York Mellon remarks, things have been rather too calm. It is a bit like that bit in an old western when the cavalry is riding through hostile territory. Just as the captain remarks "I don't like it, it's too quiet.", some hapless private gets an arrow though his chest.
Take a look at the graphs. The flattest line is the dollar/yuan (or renminbi) rate and the chinese have indicated that they're not likely to allow it to rise much in the near future. This creates some risk in a Presidential election year esepcially as Mitt Romney has declared that in his first day in office he will declare China a currency manipulator (it will be a packed day by all accounts). Of course, he's right but whether it is wise to pick a fight with your top creditor is another matter.
But the second line is the unmanipulated dollar/euro rate which is pretty much back where it started the year. Of course, the yield gap between the two currencies has been the same all quarter. In confidence terms, sentiment improved towards both currencies in January and February (the US economy looked better while Italian and Spanish bond yields fell) only to deteriorate in recent weeks. Mr Derrick thinks the Spanish debt worries may break the logjam; the key measure is when a country's bond yields are 450 basis points above those of Germany's. Spain is not there yet, but a few bad days...
We know that countries would like to export their way out of trouble and that, in a sluggish global economy, their best hope is to drive down their exchange rate. Since they can't all do that at once, that suggests the current calm in the currency markets is fleeting.
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buttonwood,
I think the link to your extractive elites post on the front page is broken. I went to read it, and got sent to a fashion page.
Poor Private Madrid. His guitar-playing and sweet singing will be missed at every campfire.
As I walked out in the streets of Laredo As I walked out in Laredo one day I spied a poor cowboy wrapped up in white linen All wrapped in white linen as cold as the clay.
"I see by your outfit that you are a cowboy" These words he did say as I proudly stepped by "Come sit down beside me and hear my sad story I'm shot in the breast and I know I must die..."
In this blog, our Buttonwood columnist grapples with the ever-changing financial markets and the motley crew who earn their living by attempting to master them. The blog is named after the 1792 agreement that regulated the informal brokerage conducted under a buttonwood tree on Wall Street.
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