What are the best bets in forex now?

When it comes to currency trading, it is perception rather than the true economic situation which matters most. Analyst Paul Rodriguez reveals the key trends that are driving the forex markets right now.

Let's be upfront here most currency trading is speculative. It often doesn't matter what the true economic situation is it's how it's perceived that matters. The trouble is that perceptions can be remarkably fickle, which means the flow of so-called hot' money that drives currencies higher can rapidly reverse when opinions change. So what's driving markets just now?

With low volatility in both stock and currency markets, the main thing driving FX markets is the difference in interest rates between countries, or yield spreads'. Economies with high nominal interest rates and solid growth, such as Australia, have seen their currencies appreciate strongly. But markets remain worried about inflation, with rising commodity prices and emerging market demand threatening to drive prices higher across the globe. What does all this mean for the major currencies?

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