Morning Currency Wrap for Wednesday February 2, 2011

QE3 & The Price Of Rice - After observing what has been transpiring in Northern Africa and Egypt over the escalating price of food, especially the grains, I decided to see what the price of the world's most popular food was doing. Well this week the price of rice is only up over 7%, and it is at its highest price in the last twelve month period. Yesterday came news from Kansas City Fed President Thomas Hoenig that the Fed could debate extending its bond-buying program beyond June if U.S. economic data proves weaker than expected. Well I think if QE3 becomes a reality then it will be the last nail in the coffin for the USD. FYI to China, if you think that the price of rice is high now I can assure you that QE3 will cause the price to surge. Now back to the markets, the Euro gave back some of yesterday's gains after Ireland’s credit rating was cut by Standard & Poor’s. The downgrade was a reminder to the market that the European sovereign debt crises is still with us, but the market is also aware that EU leaders have been signaling that they are working on a comprehensive plan to tackle the issue - so expect only a temporary loss of momentum for the Euro. In fact, recent public opinion is saying that Europeans want Germany to take more control which is giving  Germany the green light to extract measures in exchange for more money. Elsewhere, the GBP has rallied to a three-month high against the USD after a report showed the U.K. construction sector returned to growth, increasing the market's confidence that the BOE will hike rates. In Asia, most Asian currencies moved higher on signs of improved global growth while the Yen remained in a tight range against the USD. The key driver in the forex market right now is the perception that the U.S. Federal Reserve will continue with its easy monetary policy while the rest of the world continues to raise interest rates or is in the process of moving to interest hikes later in the year. Hoenig admission yesterday about QE3 only reinforces this perception. Also, the USD as lost it safe haven appeal as the market discounts the situation in Egypt as merely a political event. In Canada, the CAD was higher in overnight trading as recent global data points to a global economic recovery that is gaining traction. The key data for Canada this week will be the employment numbers on Friday for both Canada and the U.S.