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.

Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition - meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.