Dollar and Yen Gain
On Monday (March 30) the US dollar and the Japanese Yen gained broadly against other major currencies on interbank forex markets. Many interbank forex brokers expressed concerns about the possible bankruptcy of US automakers GM and Chrysler and sought the safe havens of the Yen and the US dollar.
Euro Pressured
Spain was forced to bailout a regional savings bank and that combined with an anticipated rate cut by the European Central Bank triggered a selloff of the Euro. Many interbank forex traders and experts reacted to poor stock market performance which also put pressure on the Euro. Todd Elmer of CitiFX in New York stated, “The poor start to the week in global equity markets has acted as a speed bump for the broad rally in risk appetite we’d been seeing, and its roots are in renewed concern about the financial sector and U.S. auto sector.”
Troubled US Automakers
US stocks fell after the Obama administration rejected requests from GM and Chrysler for more money and forced the resignation of GM’s CEO and pushed the automakers further down the road to bankruptcy. The Obama administration gave GM 60 days to devise a better restructuring plan. The Euro fell to $1.3193 after achieving a high of $1.37 last week. The Euro also declined against the Yen to 127.98 on interbank forex markets.
US Troubles May Benefit Japan’s Automakers
Some forex traders including interbank forex brokers believe that the Yen’s gains may be tied to the perception that US automaker troubles will benefit the Japanese auto industry. Interbank forex brokers and investors are hoping actions by this week’s G 20 summit will restore investor confidence and are hoping for action to increase the International Monetary Fund’s lending capacity which would benefit emerging economies.
In the past few weeks there has been a rise in risk sentiment which has now been reversed. This reversal of risk sentiment has interbank forex brokers once again seeking the safe haven of the Dollar and the Yen.
Dollar’s Reserve Status Questioned
Speculation and rumors about the US dollar’s status as the world’s reserve currency have been widespread. Interbank forex exchanges around the world have been paying particular attention to these rumors and statements. The replacement of the dollar as a reserve currency would seriously disrupt currency markets including the interbank forex.
Dollar’s Reserve Status Will Not be Topic at G 20 Summit
In January the dollar was called into question by Russia’s Vladimir Putin. More recently China expressed concerns about the dollar and many interbank forex brokers expected it to be a topic of discussion at the upcoming G 20 conference in London. Recent comments by both Japanese and Russian officials say that the topic will not be discussed at the G 20 summit.
Geithner’s Remarks Questioned in Congress
In the US Minnesota Representative Michelle Bachmann asked Treasury Secretary Timothy Geithner and Federal Reserve Chair Ben Bernanke to “categorically renounce the United States moving away from the dollar and going to a global currency.” Representative Bachmann has also introduced a bill in congress that”would bar the dollar from being replaced by any foreign currency.” Interbank forex brokers took note of a contradictory remark by Treasury Secretary Timothy Geithner that he was open to the idea of an international reserve currency.
German Finance Minister Warns of Euro’s Decline
For now, the US dollar’s status as the world’s reserve currency seems to be safe. This week the Euro experienced a serious decline against the dollar. Last week many were predicting a good week for the Euro on interbank forex markets. Remarks by Peer Steinbrück, German finance minister, put pressure on the Euro. Steinbruck warned that fiscal irresponsibility in Europe threatened the Euro’s future.
G 20 Summit to be Closely Watched
Next week’s G 20 summit in London is sure to draw the attention of interbank forex brokers and investors. Quite possibly interbank forex brokers and traders can get a glimpse of what various governments will do to address the ongoing global recession.
Markets Depend on the Dollar
The idea of a reserve currency is centuries old. After the Second World War the US dollar was placed at the center of the international banking system by the Bretton Woods agreement. Interbank forex brokers calculated transactions against the US dollar and under the Bretton Woods system dollars could be exchanged for gold at a fixed rate. In the 70’s the system came undone but the US dollar remained as the world’
s reserve currency due to a lack of competitor currencies. Interbank forex markets have long depended on the dollar.
UN Panel to Recommend Replacement of the Dollar
Fast forward to 2009 and the dollar is in real trouble. Many countries are suggesting that the dollar be replaced by a basket of currencies that would become reserve currencies. Many interbank forex brokers took note of an announcement by a United Nations panel that will recommend that the dollar be replaced as the world’
s reserve currency. Avinash Persaud, a member of the panel and a currency specialist has suggested the creation of something similar to the old European Currency Unit. Persaud stated, “It is a good moment to move to a shared reserve currency.”
China and Russia Desire New Reserve Currency
A move of this magnitude is bound to affect interbank forex markets and cause uncertainty among investors. Many countries desire a change from the dollar including China and Russia. Persaud believes that the Chinese Yuan will replace the dollar as a reserve currency within decades. Interbank forex brokers took note of the fact that last week the greenback was well on its way to the worst week in 24 years. Interbank forex traders blamed the decline on new Fed policies and rising risk sentiment.
This issue is bound to be discussed at the upcoming G20 summit in early April. Interbank forex brokers will be watching the summit with rapt attention. If the dollar is dumped it could be a whole new ball game in interbank forex markets.
Euro Holds On To Gains
The Euro maintained its one month high against the Dollar and rose against the Japanese Yen on interbank forex markets. Interbank forex brokers attributed the rise to positive US and German economic data. An unexpected rise in US housing starts and a stock market rally sent interbank forex brokers and investors in search of higher yielding currencies.
US Housing Starts Up
US housing starts were up 22.2% in February from the previous month. Kathy Lien of GFT Forex stated, “The uptick in the housing market and the tepid inflation pressures are welcome improvements.” Interbank markets took note of the rise of the Euro to $1.30 on Monday, the highest in months.
Financial Markets Stabilizing
Many interbank FX brokers believe that markets are beginning to stabilize with a resulting increase in investor risk sentiment. This has put pressure on the Dollar on interbank forex markets since the dollar performs well in a risk averse climate. Interbank forex brokers are waiting for the results of a Federal Open Market Committee meeting and a Ban of Japan policy meeting.
Bank of Japan to Increase Bank’s Capital
The Bank of Japan has offered up to 1 trillion Yen to banks to increase capital and may decide to purchase more government bonds to inject more funds into markets. Central banks around the globe are considering unconventional measures to bolster their economies. Many are expected to turn to quantitative easing to keep credit moving. Some interbank forex brokers are skeptical that the Euro’s rally will continue. The European Central Bank is seen as behind the curve in addressing the recession. Masafumi Yamamoto of the Royal Bank of Scotland stated, “The European Central Bank is behind the curve and it must do more in coming months. Euro/dollar and euro/yen may recover more but it’s not the start of an uptrend.”
The rise of risk sentiment is good news for interbank forex markets. There are signs that financial markets are beginning to stabilize and one can only hope for this trend to continue.
Credit Markets Still Dysfunctional
The G20 summit to take place in London in April will be closely watched by interbank forex brokers. The global economy is in shambles, credit markets are still all but frozen, and the economies of the industrialized are failing. In the past economic issues could be addressed by the G7 members but emerging economies have altered the balance of power. China and India have dynamic economies but in the past have had little influence in global economic affairs will now be included in the G20 conference.
Dollar’s Reserve Status to be Discussed
Of particular interest to interbank forex brokers will be the discussions addressing the “restructuring” of the global financial system. The status of the US dollar as the global reserve currency will be discussed but it is doubtful that the dollar’s status will change any time in the near future. China has indicated it wants a major say in any discussion of reworking the world financial order.
European Leaders Call For Increased Oversight
Prior to the summit European leaders have called for increased global banking oversight and regulations tat would penalize banks for excessive risk taking. US president Obama has called for increased regulation f Wall Street. During the ongoing global recession interbank forex brokers have seen safe haven buying as dominant and the state of the global economy has severely limited opportunities in currency markets.
US to Push For US Style Stimulus Plans
The conference is expected to address the credit crisis which has crippled the global economy. Interbank forex markets have seen the credit crunch adversely affect currency markets and limit profit taking. The US is expected to push for governments to adopt US style stimulus policies to address the instability in the global banking sector including the interbank forex.
In is hoped that the G20 conference can set policies and institute mutual cooperation to get markets moving again and stimulate recovery. Interbank forex markets have a lot at stake and interbank forex brokers will be watching the summit very closely.
G 20 Meeting on April 2nd
Currency markets react quickly to economic news and data and the Interbank Forex market is no exception. Interbank Forex brokers must sift through every bit of economic news to be successful. The upcoming G20 meeting to take place on April 2nd is sure to draw the attention of interbank forex brokers.
China Weighs In
China is a major player in the global economy and China has indicated that global recovery will be a high priority at the upcoming G20 conference. China has also made clear that it wants solid US ties. In statements sure to pique the interest of interbank forex brokers Foreign Minister Yang Jiechi has indicated that China wants to play a major part at the conference and desires long term talks about reworking the global economic order.
China Wants Reforms
Yang stated, “We believe the summit should play a role in boosting confidence, strengthening coordination on macroeconomic policies, stabilizing financial markets, undertaking necessary reforms in the global financial system and regulatory regime.” China’s moves at the upcoming conference are bound to have an effect on interbank forex markets.
China and US to Work Together
Yang refused to play the blame game and said that China and the US must work together towards global recovery. Yang stated, “In the current international environment, China and the U.S. share broad common interests. We hope that each side can accommodate the other’s core interests and enhance exchanges and cooperation.” Another meeting of importance to interbank forex markets will be the meeting between US president Obama and Chinese President Hu Jintao.
Obama and Chinese to Meet
The two presidents will discuss and try to resolve their sometimes conflicting views on the global economy and trade and the meeting is seen as crucial to global recovery. The US has accused the Chinese of deliberately manipulating the Yuan in the past, giving China an unfair advantage in trade between the two countries. Interbank forex brokers will be watching to see what effect this has on the Yuan in global currency markets.
The results of the G20 summit will undoubtedly have an effect on global currency markets. The meeting will focus on global recovery and interbank forex brokers and traders will be hanging on every word.
China’s Stimulus Package Triggers Rally
The US dollar rose to a four month high against the Japanese Yen on Wednesday on interbank forex markets. News about China’s stimulus package spurred a rally in equity markets and brought about a return to risk appetite. Many interbank forex brokers were dumping the dollar for higher yielding currencies such as the Aussie and New Zealand dollars. Robert Blake of State Street Global Markets in Boston stated, “The biggest news today came out of China and that seems to have a bigger impact on risk appetite than market activity. The news of the stimulus package is supporting riskier currencies and generating an unwind in the safe-havens that is now more or less limited to the dollar.”
China’s Manufacturing Grows For Third Straight Month
On Wednesday the Chinese government said it would embark on a program of infrastructure spending and would also spend funds on manufacturing. China also released data that showed that Chinese manufacturing improved for the third straight month. Interbank forex markets reacted to this rare piece of good news and brought about a slight return of risk appetite.
Recession Has Not Hit Bottom in Japan
The US dollar rose 1.0% against the Yen to 99.29. The Yen was pressured by concerns about the deep recession in Japan and possible political instability. Japanese investors are also seeking opportunities elsewhere as zero interest yields make the currency unattractive for investors and interbank forex brokers. Bank of Japan board member Miyako Suda expressed worries that the recession in Japan has not hit bottom and expressed concern about falling share prices.
Equity Markets Improve
The Euro traded at $1.2616 and the Pound traded at $1.4117 and both currencies were up 0.4%. Improved performance of equity markets have improved investor sentiment although investors and interbank forex brokers remain concerned about the state of the global economy. Worries about the state of the US and global economy has sent many seeking the safe haven of the dollar which has benefited from its status as the world’s reserve currency.
BOE and ECB Decisions Due
Analysts and interbank forex brokers are expected to focus on decisions by both the BOE and the ECB. Interbank forex brokers will be paying particular attention to the ECB for signs of any unconventional monetary measures taken beyond rate cuts. This week has been a busy one for interbank forex brokers.
Dollar At 3 Year High
The US dollar rose to a three year high against a basket of six major currencies as interbank forex brokers sought the safe haven of the US dollar. The flight to safe haven was stoked by the deepening recession and the news that Citibank had received a third bailout from the US government.
Pound Declines
Interbank forex markets saw the British Pound decline to a one week low against the dollar. Reports stated that British consumer confidence was at a 30 year low. The only good news for interbank forex brokers was the rise of the Hungarian Forint and Polish Zloty against the troubled Euro.
Investors Seeking Safe Haven
On Friday the US dollar traded at $1.2663, a gain of 0.6%. The Dollar Index reached its highest level since April 2006. Brian Kim of UBS AG stated, “Uncertainty is still driving the day, in this environment, people are still in favor of going into that safe haven until they see something to shake them out of it.”
Citigroup Concerns
The Citigroup bailout weighed heavily on interbank forex markets when it was revealed that the troubled bank had received a third bailout package from the US government. The news signaled a return to risk aversion and safe haven buying. Lane Newman of ING stated, “The dollar’s reacting to the Citigroup news. The dollar has benefited from any risk aversion. That trend seems to be re-emerging.” Risk aversion has dominated interbank forex markets throughout the global recession.
US GDP Contracting
The US Commerce Department reported that US GDP contracted at a 6.2% annual rate the most since 1982. Although the recession is deepening in Europe and Japan many economists expect the US to be the first nation to recover from the global recession. While the Japanese Yen was last years highest performing currency, deteriorating economic conditions in Japan have put pressure on the Yen on interbank forex markets.
Risk aversion and safe haven buying seem to be the order of the day on interbank forex markets. Good news is a rarity and it is anyone’s guess how long these economic conditions will prevail.
