Risk Aversion Dominant

Risk aversion has dominated Forex markets for months. Returns to risk appetite are usually short lived. Currency markets have been especially volatile and investors, including interbank forex brokers have flocked to the safe haven of the US dollar and the Japanese Yen. This weekend the G7 meeting in Rome has captured the attention of interbank forex brokers worldwide.

G7 to Address Currency Issues

The US dollar rose against the Yen but fell against the troubled Euro on Friday. Although currency is likely to be discussed at this weekend’s G7 meeting intervention in currency markets, including the interbank forex is unlikely. The meeting includes finance ministers from G7 countries, and representatives from the World Bank, the International Monetary Fund, and the World Trade Organization. While the primary focus will be on the global recession many expect currencies to be addresses by the group and results of the conference are bound to affect interbank Forex exchanges.

Risk Tolerance Low

Recent US data showing higher than expected retail sales and fewer jobless claims failed to inspire investor confidence resulting in a flight to safe haven by interbank Forex markets. Win Thin of Brown Brothers Harriman said, “Despite the plan and despite some surprising data in the U.S. this week, tolerance to risk remains very low and that will keep the bid on the dollar and on the yen.”

Euro Zone Economy Continues to Deteriorate

The newly elected Obama administration announced plans to clear $500 billion in toxic assets from troubled banks and proposes $1 trillion in new lending by a an expanded Federal Reserve program. The situation in the Euro Zone continues to deteriorate and a report released Friday showed that the Euro Zone is in a deeper recession than was originally thought putting pressure on the Euro in interbank forex markets. Jessica Hoversen of MF Global Ltd. Stated, “Data from the region is dismal. The situation in Eastern Europe is not good for the euro zone and there’s not going to be a miraculous statement from the G7. The dollar will continue to provide a safe haven bid.”

US Markets Closed Monday

Aside from the G7 meeting there will be little new data to ponder in the coming week The Federal Open Market Committee is expected to release the minutes of January’s meeting which will include data on producer and consumer prices. Monday’s trading is expected to be slow on interbank Forex markets due to US markets being closed for Presidents Day.