Foreign exchange traders might not be able to rely on some of their most basic assumptions about the market anymore, reports Monday’s FT. The higher a country’s interest rates, the stronger its currency typically became as investors sought greater returns from yields. Perhaps no longer. Foreign exchange markets could be on the verge of big shift, some strategists believe. Last week’s emergency 75 basis-point cut in the benchmark Fed funds rate has not so far led to significant dollar weakness. Mansoor Mohi-uddin, chief foreign exchange strategist at UBS, said: “Investors are starting to ask whether central banks that proactively cut rates to bolster growth will now see their currencies rally and whether those that don’t will see their currencies weaken.”

This entry was posted by Sam Jones on Monday, January 28th, 2008 at 4:24 and is filed under Capital markets. Edit this entry.