Money Supply Announcements
When you are spread betting, how can you turn money supply announcements to your advantage? Money supply is something that governments control, in essence by freely printing more bank notes. In practice, so much finance is handled electronically nowadays that the government can increase the money supply simply by diktat.
Increasing the money supply is sometimes called quantitative easing, but whatever its name it tends to reduce the value of the currency. In fact there are several different types of money supply measures, known as M1, M2, M3, etc., and they include the amount of currency in circulation, the amount in checking accounts, money market accounts, savings deposits, and so on in various combinations.
There has been increasing interest in money supply in recent years because of its effectiveness as a short-term solution to financial problems. The US was so embarrassed by the rate at which the money supply was increasing that they ceased to publish the rapidly escalating M3 figure in 2006.
So it can be very worthwhile to keep an eye on any announcements made about money supply. Typically the developed countries increase the money supply at a greater rate than the normal gross domestic product growth, which in itself may be storing up problems for the future – this would normally cause inflation to rise, but the need to stimulate faltering economies recently has become dominant, and inflation is in check.
Money supply announcements and interest rates are interconnected. There used to be a theory that money supply announcements increased the variability of interest rates, and that was another reason cited for ceasing their publication. However, just as interest rates can affect currency values so can the rate of increase in money supply, and it provides an alternative measure for the spread better to take a view on currency relationships.
In the US, the money supply is announced weekly and monthly, and the weekly figures are reported at 4:30 PM Eastern Standard Time on Thursdays. As this is during the evening in the UK, it provides an opportunity for part-time spread betters to watch the markets after work and anticipate where the currencies may be headed.
Money supply is less directly related to currency values than interest rate changes. There is no hard and fast connection that will instantly cause the price of a currency to change, such as there is with interest rates. But announcements of major shifts in the amount of money supply available can move markets. If you have an interest in international affairs, and are spread betting on the foreign currency exchange, then it is a good idea to keep tabs on governmental actions that include savings, spending, taxation, and other influences on the spending power of the currency.
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