Yen Reaches 13 Year high

In 2004 the Japanese government spent the equivalent of $300 Billion to hold down the value of the Yen. The Yen recently achieved a 13 year high against other major world currencies. The performance of the Yen is impressive since the Yen has performed positively while almost every other currency has collapsed relative to the US dollar.

Strong Yen Drives Up Prices

Despite comments by the Finance Minister, the Japanese government is unlikely to intervene on behalf of the Yen in global interbank Forex markets. The G7 countries have urged Japan to allow the market to run its course. The US government hopes the weaker Yen will help to restore American export competitiveness. The Asia Times stated, “Japan will be criticized internationally, especially by the US, the country’s strongest ally, if it acts to stem the currency’s gain as US automakers are still on the brink of bankruptcy. The stronger yen drives up the price of cars imported to the US.”

Japanese Finance Minister Watching Markets With Alarm

The Yen’s appreciation has prompted high level meetings between world global economic and political leaders. Interbank Forex experts are watching closely to confirm that the Japanese government does not intervene in Forex markets. The Japanese Finance Minister recently stated that he is watching Forex markets with alarm causing many interbank Forex traders to speculate that the Japanese government may once again intervene in currency markets.

Japan’s First Trade Deficit in 30 Years

The recent economic news from Japan has not been good and Japanese exports have plunged, inducing the country’s first monthly trade deficit in almost three decades. Japanese corporate profits are down as a result of unfavorable forex conversion losses caused by the Yen’s performance on currency markets including the Interbank Forex. Unemployment figures in Japan are expected to set a new record. Japanese exports have plunged, inducing the country’s first monthly trade deficit in almost three decades.

Both the Japanese Yen and the US dollar have performed well on interbank Forex markets despite the global economic crisis. It remains to be seen just how long both currencies will hold their ground on world currency markets.

Quantitative Easing?

Just what is Quantitative easing? It is a term heard frequently when referring to actions by the US Federal Reserve. The frequently used term is composed of two words, Quantitative, which refers to the money supply and easing, which means to increase the money supply. It is a tool of monetary policy and means that a central bank or government prints new money to increase the supply. The move by the Fed is bound to have an effect on the Interbank Forex market but to what extent is unknown at this time.

Fed Slashes Rates

On Tuesday the Federal Reserve cut overnight rates to zero to 0.25 %, an unconventional action meant to lift the economy out of a year-long recession. Doug Roberts, chief investment strategist at Channel Capital Research.com stated, “The message is they’re instituting quantitative easing on a fairly large scale.”

How it Works

Under quantitative easing, the Federal Reserve will flood the banking system with new money to promote lending. The action is usually taken when lowering interest rates is no longer effective because they already are at or near zero.

Central banks add cash by buying up large quantities of securities, mortgages, government debt, commercial loans, and even stocks from banks and financial institutions giving them plenty of money to lend. The Fed hopes the move will ‘prime the pump’ of the Interbank Forex market and get banks lending again.

Easing of Frozen Credit Markets

Recently the tool has been used by Japan to stimulate the economy and to fight inflation. Much of the global economic crisis is caused by frozen credit markets. Many corporations find themselves unable to secure loans necessary for day to day operations. The credit crunch has adversely affected the Interbank Forex market and banks have been unwilling to lend to each other.

Quantitative easing helped Japan to stimulate their economy and to make sure there was no shortage of liquidity. The Fed hopes it will do the same for the beleaguered US economy and stimulate lending on Interbank Forex markets.

LIBOR Falls

The cost of three month dollar loans between banks fell ahead of an anticipated rate cut by the US Federal Reserve. The interbank lending rate for 3 month dollar loans known as the London Interbank Offered Rate (LIBOR) fell to just over 1.87 percent according to the British Bankers Association. This move is expected to affect the interbank Forex market as bankers await the decision of the Federal Reserve.

Fed Expected to Cut Rates Further

The Fed is expected to cut its rate to 0.50, it’s lowest in history. At the same time the rate for 3 month loans in Euros known as the EURIBOR fell 0.04 percentage points to 3.25 percent. The equivalent rate for British Pounds fell 0.05 percentage points to around 3.13%.

Interbank Forex Affects Everyone

Interbank Forex rates are important because they affect the costs of loans such as student loans or mortgages. Many US citizens are unaware that their home loans may be tied to LIBOR rates. In recent months rates have been high as banks hoarded cash instead of lending, creating a credit crunch affecting the day to day economy. Interbank fx rates affect the average person in ways they unaware of.

Rates Remain Above Benchmarks

All three lending rates still remain above the benchmarks set by central banks, 1 %in the U.S., 2.00 %in Britain and 2.50 %in the 15-nation euro zone. These figures suggest that banks are still reluctant to lend and the interbank forex market remains somewhat volatile because of this reluctance. The difference between bank lending rates and official base rates have fallen back towards one percentage point , well below levels seen in the Fall.

The interbank force market affects us all and although the average small investor does not have direct access to interbank Forex data, close monitoring of movements by central banks can yield some very useful information that can be turned into profits on Forex markets.

Forex Markets React to Auto Bailout

Once again the US automaker bailout is in the news and interbank Forex markets are reacting. The white house and congressional Democrats reached a deal that on a $15 billion dollar deal that would bailout and restructure the big 2 automakers.

Markets Up

The news bolstered global shares on world stock markets by 0.78%. The interbank Forex market quickly reacted and b the US dollar fell against the Euro and the Japanese Yen fell broadly. “The market is focusing very much on the bailout deal for automakers,” IDEA global senior strategist Maurice Pomery said. “We’re seeing a bit of a short squeeze that is pushing the yen lower,” he added.

Bank of Japan governor Masaaki Shirakawa said he was watching Forex markets carefully including the Interbank Forex market. Investors fear that the Bank of Japan could intervene in the currency market if the dollar/yen falls below 90 yen.

Risk Aversion Easing

A slight easing of risk aversion has sent the dollar down slightly against the Euro but the dollar remains the reserve currency on interbank Forex markets. Analysts believe the falls in the yen are likely to be short-lived as global recession fears keep risk aversion high. The expected lowering of interest rates in other industrial countries towards the low Japanese rates is expected to support the Yen on interbank Forex markets.

Bailout Conditions

Interbank Forex traders have been watching the US automaker bailout talks with intense interest. The agreement includes conditions to provide low-interest loans to avert a threatened industry collapse if one of the big three car firms were to fail. Some interbank Forex traders are skeptical that the agreement will actually save the troubled auto industry while others say it will do little to cure the global recession.

Many economists argue that government does not have the management skills required for an oversight of the auto industry. Others argue that a collapse of the US auto industry would be an economic catastrophe. In the meantime markets worldwide will be watching and reacting.

GM Warns They Could Be Out Of Business In a Month

The predictions for Friday’s non farm payroll report are expected to be grim. One of the few pieces of news that could increase risk appetite is the proposed bailout of US automakers. General Motors warned they could be out of business in less than a month if the bailout package is not approved resulting in the loss of millions of jobs. Chrysler has stated essentially the same thing.

ECB to Lower Rates

In the meantime European Central Banks were expected to lower rates further affecting the interbank forex market. There are signs that credit markets are thawing slightly but not enough to jump start the global economy. In addition the US treasury is considering steps to new steps to strengthen bank capital and measures to lessen home foreclosures.

Uneasy Business and Government Partnrship

The global economic crisis is unprecedented and there is now an uneasy partnership between business and government in the US. Both business and government are sailing into uncharted waters in an attempt to prevent a global economic meltdown. The US government is injecting billions in new capital into banks to prime credit markets that provide such consumer services as auto loans, student loans, mortgages, and credit for day to day operations of businesses.

Interbank Lending Essential

Interbank forex is essential for the smooth functioning of the global economy. US interbank forex and lending rates have remained at the same rate since Monday and stocks have rallied slightly due to expectations that the US government will bailout the major automakers. Investors want this bailout and the sooner the better. It is expected that the bailout would have a positive effect on stock and commodity markets and increase risk appetite in forex markets. Interbank forex rates are affected by many factors and right now the state of the global economy is affecting rates the world over.