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.
