Dollar Gains Against Pound and Euro

The British Banking industry has been struggling ever since the announcement that the Bank of Scotland has suffered the biggest banking losses in British history. This was quickly reflected in interbank Forex markets when the dollar hit a 7-1/2-year peak against the Pound. The Dollar also rose against the Euro amid concerns about a deepening Euro Zone recession.

Rumors of UK Downgrade

Optimism about newly inaugurated Barack Obama plans for the economy boosted the Dollar but the Dollar pared gains when Obama did not provide details on economic crisis measures in his address. The Pound fell about 3. % against the dollar on Tuesday and was on track to post its biggest daily drop since 1992. Kathy Lien of GFT Forex stated, “The market is afraid that the UK will turn into the next Spain or Greece. Over the past few months, they have been working overtime to inject more stimulus into the economy, but the more that they spend, the worse impact it has on the UK’s fiscal position. Since the UK is a center for global banking it is expected that this will have profound effects on the interbank Forex market.

Standard & Poor’s Downgrades Spain and Greece

On Monday Standard and Poor’s downgraded Spain’s credit rating, following a similar move on Greece last week causing adverse effects on Interbank Forex and lending. Interbank Forex brokers are left wondering what the next move by the British government will be.

EU Economy to Shrink in 2009

A European Commission report on Monday that forecast the euro-zone economy would shrink 1.9% in 2009 and approximately 3.5 million jobs will be lost. Analysts said the European Central Bank may have to cut interest rates further after delivering a half percentage point reduction to 2 percent last week.

Lack of Specifics in Inaugural Address

The expected ‘Obama boost’ did not calm markets. In the interbank Forex market the Dollar trimmed gains within five minutes after President Obama ended his speech and as U.S. stock indexes extended losses. A lack of specifics in Obama’s inauguration was cited as a reason for the lost gains.

All eyes will be on the new administration in Washington. The global economy depends on the smooth functioning of the US economy and interbank Forex brokers will be watching the new administration closely. At present all eyes are on Washington.