G 20 Summit Raises Risk Sentiment
Markets react quickly to world events and the interbank forex market is no exception. Last week’s actions by the G 20 summit in London caused a rise in risk sentiment despite dismal employment figures from the United States. Probably the most important action taken by the G 20 nations was the decision to provide massive sums of money to the International Monetary Fund and the World Bank.
Pressure on Dollar and Yen
Despite the demands for increased regulation the US eased balance sheet rules for banks. Financial markets and interbank forex markets reacted positively to G 20 actions. The rise in risk sentiment put pressure on the US dollar and Japanese Yen on interbank forex markets. The European Central Bank made rate cuts that were less than expected. The ECB also did not announce any unconventional measures such as quantitative easing. Interbank lending rates for three month dollar and Euro funds held steady despite the small rate cuts.
$1.1 Trillion Stimulus Package
Risk aversion declined in both financial and interbank currency markets after the G 20 leaders agreed to provide a $1.1 trillion dollar package to stimulate the global economy. The G 20 leaders also agreed to increased regulations on banks, hedge funds, and tax havens. The Japanese Yen fell on interbank forex markets and Japan is expected to announce a $100 billion dollar stimulus package late this week.
Cooperation Between Central Banks
Some analysts believe that government actions may not help the banking sector as much as expected and expect banking troubles to continue. Despite the naysayers the US Federal Reserve Bank is cooperating with the Swiss National Bank, the Bank of England, Bank of Japan, and the European Central Bank to get foreign currencies to US financial institutions.
What happens in interbank forex markets is usually a precursor for what will happen in the retail forex market. If risk sentiment remains high in interbank forex markets the same risk appetite is sure to reverberate throughout global forex markets.
