Give back time. The USD fell against a basket of currencies on Wednesday, as appetite for higher-yielding currencies revived after being thrown for a loop by China's surprise interest rate hike. Yesterday's reaction was way overblown, especially when you consider that the Fed is about to embark on a massive QE program. I suspect the Chinese rate hike made speculators nervous so they started to cover their over extended USD short positions - I do not subscribe to the bubblevision talking heads calling yesterday's move a risk off trade with investors moving to the safe haven of the USD. Come on, the USD and safe haven should not be used in the same sentence. Yesterday's parade of Fed voting members were all on the same page indicating the central bank will soon offer further monetary stimulus, with one saying $100 billion a month in bond buying may be appropriate. In the UK, the minutes from the Bank of England's last monetary policy committee meeting showed a three-way split, with one member voting for QE, causing the GBP to fall. Later, the GBP was able to claw back some of its losses after UK finance minister George Osborne gave details of the harshest government spending cuts in decades, taking an axe to the welfare state in an effort to reduce a record budget deficit. Of course these cuts would probably hurt growth and keep monetary policy easy, thus putting more pressure on the GBP. In Canada, the CAD was up as commodity prices rose from yesterday's lows do to the overblown reaction to China's interest rate hike.
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