The loss in the US dollar is largely being blamed on the surprise decision by the US Federal Reserve to cut American interest rates. The reason given is growing fears of a recession in the USA, the world’s largest economy. It is the biggest single cut in US interest rates for more than two decades, and follows steep stock market sell-offs around the world.

One angle is sadly humorous:

SocGen’s unwinding of the massive [$7.15 billion US dollars] rogue [Jerome Kerviel] positions on Monday would have contributed to the violent slump in share prices and may, therefore, have played a part in the surprise decision by the US Federal Reserve to cut American interest rates.

Though Societe Generale says it first learned of what it termed “massive fraudulent directional positions” on Jan. 19, it waited until it could close out those trades before going public with the problem. Winding down the trades, the bank said, resulted in a €4.9 billion write-down, making it potentially the largest loss ever from an alleged rogue trader.

The combined trading positions he built up over recent months, say people close to the situation, totaled some €50 billion, or $73 billion.

CEO Daniel Bouton said, “Perhaps we made a mistake in that respect, but the authorities will pass judgement on it.”

Mr Bouton said today that “four or five” of his managers and supervisors had resigned and a legal investigation was taking place.

[...]

Carlos Garcia, a Fortis analyst, said: “The most serious thing is that this puts into doubt the risk management systems at some banks. You can’t suddenly announce from one day to the next a hit of $7 billion.

After reading about about this on various news sites, I went to Marc Andreessen‘s blog to see what pithy commentary he had on this issue, and I wasn’t disappointed, and imagined more to come in the following days. Again, Marc hasn’t disappointed.

10.48 – bank had a “duty to cut off positions before disclosing the information.” “With the chance of good fortune, it was possible to liquidate these positions over three days which was quite exceptional…We discovered this at the same time as the market plummeting….we really had to settle those positions as fast as we could and we did so during the three day crisis which you all witnessed.” [Aha! Thus the massive worldwide equity market crash on Monday!]

“They could have turned into gains if the market had gone up.” [If I had wings, I could fly!]

10.55 – “the risk and control system is not faulty.” [Yes, clearly not.]

When I moved down to California in September 2005, I started to follow the US and Canadian dollar exchange rates more closely. For the last year and a half, since starting with Automattic and getting paid in green backs while living in Canada, I’ve been watching very closely.

I now understand why I see so many FOREX (foreign exchange) scam and spam sites. Currency like everything else it seems is gambled, and based on daily and short term fluctuations very recklessly. Likely, because it seems simpler than other investing.

Every day I get a Canadian US dollar newsletter, and it seems very light on true insights — far lighter than newsletters for a specific stock or stock sector that I have read. Short term, currency is a crap shoot.

My hope is that medium and longer term there is some more sanity to the relationships, but I’m not encouraged based on my limited experience. In fact I’m fairly embarrassed for us all. Sure, it is a complex system and all investments are speculative, but currency is the very foundation of our system, and in my naivety I thought it would reflect stability in our economic practices.

Without the gambling, it might be surprising that our nations have been so unsuccessful at minimizing the swings between grown and recession.

The advice I have received numerous times, which seems the best, is trade it the day I get paid — though I have yet to follow it. Trading regularly reduces the risk (and the possible benefits), and also saves you from the exhaustion of trying to truly anticipate FOREX.