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.

Bankers Disappointed by Bernanke and Geithner

Markets were disappointed by both Fed president Bernanke and Treasury Secretary Timothy Geithner’s remarks and testimony in front of a House Committee and Interbank Forex markets were no exception. Geithner’s remarks left many interbank forex brokers with the impression that the actions taken by the Obama administration are no different from those taken by the previous Bush administration.

Plans Lack Original Ideas

The perception was that the Obama administration’s plan which could cost over $2 trillion dollars covered key areas but lacked original ideas. The US dollar rallied on Tuesday on interbank forex markets as a return to risk aversion sent investors seeking safe haven. Adam Fazio, of CIBC World Markets commented on the plan, “People were expecting the government to come up with details on how to fix things. And it doesn’t sound that more details about the plan are forthcoming, so I think there is more risk inherent in the market.”

Further Delays For Rescue Plan

Geithner’s remarks were short on detail and interbank forex brokers remained concerned about how the new Obama administration intends to address sluggish credit markets that are crippling the economy. Interbank forex markets remain concerned about the $838billion economic stimulus package which now has to pass the Senate and the House of Representatives causing further delay. The lack of details and the expected delay have caused great concern among interbank forex brokers and their clients.

Investors Seek Safe Havens

The Euro rose 0.5% against the US dollar to $1.2953 while the British Pound fell 0.7% against the dollar, and the Japanese Yen traded at 90.23 against the dollar. Market volatility and the lack of details in the US rescue package have many interbank forex brokers seeking the safe haven of US treasuries and the Yen.

Markets Remain Uncertain

Interbank forex brokers hope for swift action from the US Congress and hope that legislators can put aside ideological differences and pass the proposed rescue packages. Until then markets will remain uncertain and trade will suffer.

Geithner Delays Speech

Currency markets are in limbo while waiting for US Treasury Secretary Timothy Geithner to announce the details of the bank rescue plan. Interbank Forex markets were affected by the delay with many interbank forex brokers taking a wait and see attitude. President Obama is expected to address the nation on Monday night but Geithner’

s delay has resulted in a loss of confidence among interbank forex brokers and some investors.

Pressure On Dollar

Many analysts believe that Geithner’

s plan will be nothing more than a compromise in addressing the issue of toxic assets that have plagued banks since the beginning of the global economic crisis. This has put pressure on the dollar on interbank forex markets but the Japanese Yen has seen a rise after data revealed a worsening economic picture and had some interbank forex brokers seeking safe haven.

Waiting For Geithner

Last week saw a return of risk appetite as stock markets rose and many investors took advantage of the opportunities offered by higher yielding currencies on interbank forex exchanges. Market watchers are awaiting both Geithner’s remarks and Tuesday’

s Senate vote on the $827 billion dollar bailout package. Most interbank forex brokers expect the senate version to pass despite Republican opposition.

Compromise

Without the injection of government funds to state and local governments the country faces “a vicious cycle of layoffs, falling home values, lower property taxes, more layoffs,” according to Lawrence Summers, chairman of the White House National Economic Council. The Senate version of the package cut some funding to gain Republican votes necessary for passage of the package.

Interbank forex brokers will be monitoring the news media on Tuesday and watching the effects both announcements will have on global interbank forex exchanges. Hopefully the news will be good for a change!

Yen Weakened As Risk Appetite Returns

The Yen weakened against the troubled Euro on Friday and the US dollar also weakened due to the dismal job figures. The US has posted the highest job losses in 16 years and many corporations are announcing further job cuts. Interbank Forex markets have reacted to last week’s news from the UK, the US, and the Euro Zone.

British Pound Rises

The British Pound rose on Interbank Forex markets amid speculation that rate cuts by the Bank of England would help to stimulate the troubled UK economy and help it to recover faster than the Euro Zone. The Japanese Yen fell for the second week in a row as Interbank Forex brokers bet that the proposed stimulus package will pass in both houses of Congress and help the US to recover and revive investor confidence.

Interbank Forex Reacts to Risk Appetite

There has been a return to risk appetite and Interbank Forex markets have reacted to the detriment of the Yen which is traditionally seen as a safe haven currency. Bob Parker of Credit Suisse stated, “We are going to see the yen start to reverse. The yen was the strongest currency in the world over the past five months.” The Yen fell 3.1% against the Euro to 118.85. The Yen also fell 2.1 against the US dollar to 91.89. The Euro actually gained 1% against the dollar to $1.2940.

Geithner To Announce Bank Rescue Plan

On February 9th US Treasury Secretary Timothy Geithner will announce his plan to aid the troubled US banking sector, a move that will be watched closely by Interbank Forex brokers. Many believe that the plan will guarantee toxic assets held by banks instead of creating a special ‘bad bank.’

ECB Holds Rates Steady

The European Central Bank held rates steady at 2% but indicated that next month the bank will cut rates by half a percentage point. The failure to cut rates was not popular with some Interbank Forex traders. Last week was a busy one on Interbank Forex markets. Economic data was released from the Euro Zone, the UK, and the US and kept Interbank Forex brokers occupied. Stock markets were up around the globe but it remains to be seen how this will affect Interbank Forex markets in the near future.

Dollar Recoups Losses

In a move sure to affect the Interbank Forex market, the Dollar recouped the slight losses of Tuesday and gained against the British Pound. Many interbank Forex brokers are waiting for Thursday’s interest rate decisions by the Bank of England.

BOE to Cut Rates

Many interbank FX brokers expect the BOE to cut rates by at least 50 basis points to 1.0%. While the Pound fell against the Dollar it held steady against the troubled Euro on interbank forex markets. Interbank Forex brokers believe that global stock markets will affect the performance on interbank currency markets. Economist Geraldine Concagh of AIB Group stated, “What’s going on in equities is pretty much setting the tone for currencies and we saw the dollar sell off yesterday and sterling pick up some ground. But now there’s a bit of a reversal and sterling is moving into a defensive position ahead of tomorrow’s BOE rate decision.”

Pound Pummeled

The Pound was down 0.6% to $1.4386 after trading at $1.45 on Tuesday. Both the Euro and the Pound were lower against most major currencies on the interbank and retail forex markets and no movement in either currency is likely until both the Bank of England and the European Central Bank announce rate cuts. Interbank Forex brokers are also waiting for the US employment report due Friday.

UK Economy Expected to Contract in 2009

The UK based National Institute for Social and Economic Research predicted that Britain’s economy will contract at the largest rate in six decades and the BOE will have to do more than rate cuts to stimulate the British economy. Cuts in the onerous Value Added Tax have failed to produce the desired results and consumers remain wary.

Busy Week For Forex

This will be a big week for the interbank forex market. On Thursday both the Bank of England and the European Central Bank will announce rate cuts and other plans to fescue the troubled economies. On Friday the much awaited employment report from the United States is not expected to bring much good news. It will certainly be a busy week for interbank forex brokers.

Investors Seeking Safe Havens

Poor economic data from Europe, Asia, and Japan has investors scurrying for safe havens provided by the US dollar and the Japanese Yen. Although there have been a few instances of slightly increased risk appetite, these have generally been short lived. Interbank Forex brokers have been especially cautious and interbank lending is still at a standstill.

US Growth Weakest in 26 Years

Data shows that US growth is at its weakest in 26 years and data from both the UK and the Euro Zone confirm that the global recession is worse then expected. The flight to the US dollar and the Japanese Yen was quickened by falling Asian and European shares and interbank Forex brokers sought the safe haven provided by the two currencies.

Soros Weighs In

Remarks by billionaire investor George Soros put pressure on the already troubled Euro on Interbank Forex markets. Mr. Soros believes the Euro will not survive without a coherent EU plan to deal with toxic assets. Statements by European Central Bank President Jean-Claude Trichet also put the Euro under even more pressure on interbank Forex exchanges.

Japan In For Prolonged Recession

Figures showing that Japan’s industrial output dropped 9.6% in December pointed to a prolonged recession. The drop was the largest in Japan’s history. Figures to be released in the US are expected to show the US economy at it’s weakest in 26 years. Phyllis Papadavid of SG in London stated, “It seems like everywhere you turn there is a frightful batch of data. I think it’s a confirmation of what we’ve been concerned about in terms of the pace of the downturn in the global economy and clearly the FX market is reacting to it.”

Yen Benefits Risk Averse

If US GDP turns out to be weaker than expected the Japanese Yen is expected to be the beneficiary on interbank Forex markets. Day traders who trade Forex online are also expected to flock to the Yen for safety. Toru Umemoto of Barclays in Japan stated, “If U.S. GDP comes out much weaker than expected, risk aversion would increase and the yen would be the beneficiary. Bigger-than-expected negative U.S. growth will have a negative impact on the global economic growth.”

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.

Dollar Surrenders Gains

The dollar fell against the Euro on Wednesday and surrendered recent gains against the European currency. The fall was blamed on low U.S. interest rates and recent economic figures from the US. Currency markets including the interbank Forex have been volatile since the current economic crisis began.

Bleak Euro Zone Data

Despite the Euros slight gains data from the Euro Zone continues to paint a bleak economic picture. News from the Euro Zone reveals a rapidly weakening economy, and inflation easing. The European Central Bank is expected to cut rates again next week which will have ripple effects throughout the Interbank Forex market.

ECB to Ease Monetary Policy

Data released Wednesday showed Euro Zone producer prices fell sharply in November, and a record monthly decline on a sharp drop in energy costs. This followed data released Tuesday that showed a smaller than expected rise in consumer prices prompting speculation that the European Central Bank will be ready to ease monetary policy. Interbank Forex traders will be watching the actions of the ECB closely.

Howard Archer, an economist at IHS Global Insight, stated, “Given widespread evidence of sharply diminishing inflationary pressures and deepening euro zone recession, we believe there is a compelling case for the ECB to cut interest rates appreciably further.”

Japan to Scrap Capital Gains Taxes

The Japanese Yen surrendered some recent gains due to a newspaper report that Japan’s government will seek to scrap capital gains taxes for foreigners investing in Japanese companies through funds, which could prompt capital flows into the country.

The dollar fell 0.5 percent against six major currencies in Wednesday’s trading. Audrey Childe-Freeman, senior currency strategist at Brown-Brothers Harriman in London said, “The dollar rally is showing signs of fatigue. Maybe there is a bit of nervousness ahead of the U.S. non-farm payrolls on Friday. “The depressed state of the economy is something that is priced into the market already, but we’ve seen a remarkable recovery in the dollar and that’s losing momentum. Plus non-farm payrolls will present a pretty ugly picture.”

473,000 Jobs Lost in November

It is expected that the new Plus non-farm payroll report will pain a bleak employment picture for the United States and will also affect global Interbank Forex traders. US data, released on Wednesday include a precursor to the Friday’s job report that is expected to show that 473,000 jobs were lost in December.

Currency markets, including the Interbank Forex have been extremely volatile in 2008 and this volatility is expected to last well into 2009.

Fed Plays Key Role

The recent global financial crisis has put the US Federal Reserve Bank in the spotlight. Its policies have global effects on markets including the Interbank Forex market. The Federal Reserve has played a key role in attempting to revive the economy during the worst recession in decades. Because of the close integration of major world economies the movements and policies of the Federal Reserve are watched closely by interbank Forex traders worldwide.

A Brief History

The Federal Reserve Bank was established in 1913 and is essentially the central bank of the United States. Its role is to monitor and establish a stable and responsive economy for the US. The Federal Reserve also helps to set fiscal and monetary policies and insures that the economy has adequate liquidity. The Federal Reserve affects all aspects of the economy including employment, growth rates, interest rates, money supply, and interbank Forex.

The G17 Report

The Federal Reserve is also charged with issuing the Industrial Production and Capacity Utilization report which is released on the fifteenth of each month by the Board of Governors of the Federal Reserve System. It presents the data on the output of the nation’s manufacturing, mining, and utility sectors. Also known as the G 17 report it organizes this data into industrial production and capacity utilization indices. This report

affects interbank Forex markets globally.

Stability of the Dollar

The Federal Reserve is also responsible for ensuring the stability of the US dollar. The policies of the Fed have ensured that the dollar remained strong during the near collapse of the financial sector of the US economy. The interbank Forex market has seen other currencies falter while the dollar has remained relatively stable.

Bailout Has Favorable Effect

The recent $700 billion dollar bailout, although unpopular, was passed due to the determination of the Federal Reserve Bank. The bailout has had a somewhat favorable effect on the banking sector and has stimulated credit markets. The actions of the Fed can be credited for keeping the dollar strong on interbank Forex markets globally.

Yen Reaches 13 Year high

In 2004 the Japanese government spent the equivalent of $300 Billion to hold down the value of the Yen. The Yen recently achieved a 13 year high against other major world currencies. The performance of the Yen is impressive since the Yen has performed positively while almost every other currency has collapsed relative to the US dollar.

Strong Yen Drives Up Prices

Despite comments by the Finance Minister, the Japanese government is unlikely to intervene on behalf of the Yen in global interbank Forex markets. The G7 countries have urged Japan to allow the market to run its course. The US government hopes the weaker Yen will help to restore American export competitiveness. The Asia Times stated, “Japan will be criticized internationally, especially by the US, the country’s strongest ally, if it acts to stem the currency’s gain as US automakers are still on the brink of bankruptcy. The stronger yen drives up the price of cars imported to the US.”

Japanese Finance Minister Watching Markets With Alarm

The Yen’s appreciation has prompted high level meetings between world global economic and political leaders. Interbank Forex experts are watching closely to confirm that the Japanese government does not intervene in Forex markets. The Japanese Finance Minister recently stated that he is watching Forex markets with alarm causing many interbank Forex traders to speculate that the Japanese government may once again intervene in currency markets.

Japan’s First Trade Deficit in 30 Years

The recent economic news from Japan has not been good and Japanese exports have plunged, inducing the country’s first monthly trade deficit in almost three decades. Japanese corporate profits are down as a result of unfavorable forex conversion losses caused by the Yen’s performance on currency markets including the Interbank Forex. Unemployment figures in Japan are expected to set a new record. Japanese exports have plunged, inducing the country’s first monthly trade deficit in almost three decades.

Both the Japanese Yen and the US dollar have performed well on interbank Forex markets despite the global economic crisis. It remains to be seen just how long both currencies will hold their ground on world currency markets.