As I was working on this post I found that I have to do a bit of rewrite with the New York Fed surprisingly cutting the discount rate 25bps at the open of Asian markets. This comes just ahead of the FOMC meeting Tuesday where market talk is looking for another aggressive easing in the Fed Funds Rate, and after going to the rescue of troubled Bear Stearns Friday breaking with four decades of laissez-faire practice.  

Far from soothing investor nerves reactions in the currency markets thus far suggests the Feds efforts may be having an opposite effect, the rescue and hints of aggressive easing seen more as symptoms of the malaise affecting financials markets rather than a cure. For now with this latest move a rate cut tomorrow is looking more and more a certainty, the question in peoples minds being, will it be 50bps or 75bps. While it is always a difficult and risky proposition to front run any decision what is clear at the moment is that the Fed cannot afford any form of miscommunication and their actions to me speak more loudly than their word.  

To the trader the question then becomes which pair should I go for? Would I go for higher yielders betting on Euro, or the Aussy or Kiwi, or would I go more for the risk aversion story. That trouble in financial markets would mean a stronger Swiss Franc and the Japanese currency. One thing I can be confident of is either way being in the dollar at the moment would be an act of faith and courage.  

To answer our dilemma we once again look at other markets, will all this lead to a decline in equities and ‘flight to quality’, ie interest bearing instruments, which would tell me go more for the Aussy and Kiwi. Or will it lead to a one-two punch on investor sentiment will a general pull back in all the asset classes likely to translate more into real haven plays with Yen and the Swiss Franc the greater beneficiaries.