Quantitative Easing?

Just what is Quantitative easing? It is a term heard frequently when referring to actions by the US Federal Reserve. The frequently used term is composed of two words, Quantitative, which refers to the money supply and easing, which means to increase the money supply. It is a tool of monetary policy and means that a central bank or government prints new money to increase the supply. The move by the Fed is bound to have an effect on the Interbank Forex market but to what extent is unknown at this time.

Fed Slashes Rates

On Tuesday the Federal Reserve cut overnight rates to zero to 0.25 %, an unconventional action meant to lift the economy out of a year-long recession. Doug Roberts, chief investment strategist at Channel Capital Research.com stated, “The message is they’re instituting quantitative easing on a fairly large scale.”

How it Works

Under quantitative easing, the Federal Reserve will flood the banking system with new money to promote lending. The action is usually taken when lowering interest rates is no longer effective because they already are at or near zero.

Central banks add cash by buying up large quantities of securities, mortgages, government debt, commercial loans, and even stocks from banks and financial institutions giving them plenty of money to lend. The Fed hopes the move will ‘prime the pump’ of the Interbank Forex market and get banks lending again.

Easing of Frozen Credit Markets

Recently the tool has been used by Japan to stimulate the economy and to fight inflation. Much of the global economic crisis is caused by frozen credit markets. Many corporations find themselves unable to secure loans necessary for day to day operations. The credit crunch has adversely affected the Interbank Forex market and banks have been unwilling to lend to each other.

Quantitative easing helped Japan to stimulate their economy and to make sure there was no shortage of liquidity. The Fed hopes it will do the same for the beleaguered US economy and stimulate lending on Interbank Forex markets.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

LIBOR Falls

The cost of three month dollar loans between banks fell ahead of an anticipated rate cut by the US Federal Reserve. The interbank lending rate for 3 month dollar loans known as the London Interbank Offered Rate (LIBOR) fell to just over 1.87 percent according to the British Bankers Association. This move is expected to affect the interbank Forex market as bankers await the decision of the Federal Reserve.

Fed Expected to Cut Rates Further

The Fed is expected to cut its rate to 0.50, it’s lowest in history. At the same time the rate for 3 month loans in Euros known as the EURIBOR fell 0.04 percentage points to 3.25 percent. The equivalent rate for British Pounds fell 0.05 percentage points to around 3.13%.

Interbank Forex Affects Everyone

Interbank Forex rates are important because they affect the costs of loans such as student loans or mortgages. Many US citizens are unaware that their home loans may be tied to LIBOR rates. In recent months rates have been high as banks hoarded cash instead of lending, creating a credit crunch affecting the day to day economy. Interbank fx rates affect the average person in ways they unaware of.

Rates Remain Above Benchmarks

All three lending rates still remain above the benchmarks set by central banks, 1 %in the U.S., 2.00 %in Britain and 2.50 %in the 15-nation euro zone. These figures suggest that banks are still reluctant to lend and the interbank forex market remains somewhat volatile because of this reluctance. The difference between bank lending rates and official base rates have fallen back towards one percentage point , well below levels seen in the Fall.

The interbank force market affects us all and although the average small investor does not have direct access to interbank Forex data, close monitoring of movements by central banks can yield some very useful information that can be turned into profits on Forex markets.

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.

Forex Markets React to Auto Bailout

Once again the US automaker bailout is in the news and interbank Forex markets are reacting. The white house and congressional Democrats reached a deal that on a $15 billion dollar deal that would bailout and restructure the big 2 automakers.

Markets Up

The news bolstered global shares on world stock markets by 0.78%. The interbank Forex market quickly reacted and b the US dollar fell against the Euro and the Japanese Yen fell broadly. “The market is focusing very much on the bailout deal for automakers,” IDEA global senior strategist Maurice Pomery said. “We’re seeing a bit of a short squeeze that is pushing the yen lower,” he added.

Bank of Japan governor Masaaki Shirakawa said he was watching Forex markets carefully including the Interbank Forex market. Investors fear that the Bank of Japan could intervene in the currency market if the dollar/yen falls below 90 yen.

Risk Aversion Easing

A slight easing of risk aversion has sent the dollar down slightly against the Euro but the dollar remains the reserve currency on interbank Forex markets. Analysts believe the falls in the yen are likely to be short-lived as global recession fears keep risk aversion high. The expected lowering of interest rates in other industrial countries towards the low Japanese rates is expected to support the Yen on interbank Forex markets.

Bailout Conditions

Interbank Forex traders have been watching the US automaker bailout talks with intense interest. The agreement includes conditions to provide low-interest loans to avert a threatened industry collapse if one of the big three car firms were to fail. Some interbank Forex traders are skeptical that the agreement will actually save the troubled auto industry while others say it will do little to cure the global recession.

Many economists argue that government does not have the management skills required for an oversight of the auto industry. Others argue that a collapse of the US auto industry would be an economic catastrophe. In the meantime markets worldwide will be watching and reacting.

Quick Forex Tip: The average investor usually participates in the interbank market through a broker who handles funds for a large group of investors. The large amount of money given to the broker gives him access to the favorable spreads available in the interbank market. For small investors there are a huge number of interbank FX reviews available online. These reviews give the average investor the ability to research the positives and negatives of the brokers reviewed. Most interbank FX reviews will detail customer service experiences, reliability and investment track records.

GM Warns They Could Be Out Of Business In a Month

The predictions for Friday’s non farm payroll report are expected to be grim. One of the few pieces of news that could increase risk appetite is the proposed bailout of US automakers. General Motors warned they could be out of business in less than a month if the bailout package is not approved resulting in the loss of millions of jobs. Chrysler has stated essentially the same thing.

ECB to Lower Rates

In the meantime European Central Banks were expected to lower rates further affecting the interbank forex market. There are signs that credit markets are thawing slightly but not enough to jump start the global economy. In addition the US treasury is considering steps to new steps to strengthen bank capital and measures to lessen home foreclosures.

Uneasy Business and Government Partnrship

The global economic crisis is unprecedented and there is now an uneasy partnership between business and government in the US. Both business and government are sailing into uncharted waters in an attempt to prevent a global economic meltdown. The US government is injecting billions in new capital into banks to prime credit markets that provide such consumer services as auto loans, student loans, mortgages, and credit for day to day operations of businesses.

Interbank Lending Essential

Interbank forex is essential for the smooth functioning of the global economy. US interbank forex and lending rates have remained at the same rate since Monday and stocks have rallied slightly due to expectations that the US government will bailout the major automakers. Investors want this bailout and the sooner the better. It is expected that the bailout would have a positive effect on stock and commodity markets and increase risk appetite in forex markets. Interbank forex rates are affected by many factors and right now the state of the global economy is affecting rates the world over.

Quick Forex Tip: Interbank forex trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank forex trading, s/he must do so through the use of a broker.

Obama Faces Unprecedented Financial Crisis

US president elect Barack Obama faces an unprecedented global financial crisis and how he addresses the situation may well define his presidency for years to come. Obama faces a national debt in the trillions and his appointees will be charged with overseeing the massive $700 billion dollar bailout program. The actions of the new administration will affect the entire global economy including the interbank Forex market that is responsible for trading over 2 trillion dollars daily.

World Banks Cooperate

The nature of the interbank Forex market can make it difficult to regulate but the global financial crisis has prompted unprecedented cooperation between central banks in Europe, Asia, and the US. According to the “Wall Street Journal Europe” (February 2006), 73% of total interbank Forex volume is done through 10 banks. These banks are names that we all know well, and include Deutsche Bank, UBS, Citigroup and HSBC.

World Leaders Await New Treasury Secretary

World leaders are eagerly awaiting the announcement of a new Treasury Secretary and are hoping that Obama will be capable of guiding the international community through the crisis. Former Domestic Policy Advisor to President Bill Clinton, William Galston stated; “The need for a seamless transition is greater than it has been in our adult political lifetime. With two wars abroad and an international financial crisis going on, there cannot be a period in which the new administration is just getting up to speed.”

European Economic Situation Deteriorating

European banks reported weak earnings and the economic situation is Europe continues to deteriorate. In an attempt to stimulate their economy Germany’s cabinet on Wednesday agreed on a 50 billion euro ($64.22 billion) stimulus package for Europe’s largest economy. In an extremely gloomy prediction Marc Chandler, global head of currency strategy at Brown Brothers Harriman stated; “The forces at work in the global capital markets are very big, bigger than who gets elected president of the United States. People should be prepared for a deep economic downturn in the U.S…”

Dollar Remains Reserve Currency

The dollar is still the world’s reserve currency in interbank Forex and commodity markets and is likely to remain so in the foreseeable future. In a rare piece of good news it was reported that interbank lending costs continued to fall on Wednesday with the rate for three-month dollar funds hitting its lowest level in almost four years. It is hoped that the Obama victory will return investor confident to markets including the interbank Forex.

Quick Forex Tip: Interbank forex trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank forex trading, s/he must do so through the use of a broker.

Nationalization Unthinkable

The US prides itself in being one of the last bastions of free enterprise and unfettered capitalism. Until recently the idea of nationalizing banks would have been unthinkable and would be political suicide for any politician advocating nationalization. The recent mortgage meltdown and the ensuing financial crisis have caused even the Bush administration to consider a partial nationalization of several embattled US banks. The partial nationalization of banks is not expected to affect interbank Forex transactions.

The Unthinkable Becomes Reality

After six straight disastrous days of trading stocks gained slightly after an early report that Treasury Secretary Paulson is considering allowing the Treasury Department to take ownership stakes in several beleaguered banks. The banking and credit crisis has surpassed all other economic considerations and the situation became even more serious Wednesday when despite a coordinated rate cut by US and European central banks global markets still experienced losses. Thursday morning (October 9^th) the New York Times cited unnamed Treasury officials who stated that the recently passed $700 billion dollar bailout bill allows the Treasury to put cash directly into the banking system.

It is hoped that the direct injections of cash will persuade banks to continue lending while strengthening the banks balance sheets. The Treasury would also have the right to take ownership positions in the troubled banks. At present the Treasury’s plan is unclear and without details on how the plan would work. It is expected that the plan would be voluntary for banks. Moves by both the Treasury and the Federal Reserve have strengthened the US dollar on interbank Forex markets.

Paulson Speaks

The Fed has already injected billions into all but frozen credit markets and will buy commercial paper that corporations issue to obtain short term loans and cover day to day expenses. In a statement Secretary Paulson said, “Uncertainty and a lack of confidence have clogged our basic financial plumbing. While our actions have been aimed at restoring financial markets and institutions, our purpose is to prevent financial market difficulties from further impacting businesses and families across the country.”

US Dollar Strong Despite Crisis

The current global financial crisis has made the unthinkable a reality. The fact that a conservative administration such as the present one would consider even partial nationalization of any industry reflects the seriousness of the current global situation. It remains to be seen what effect this partial nationalization of the US banking system will have on the US dollar on interbank Forex markets. The dollar has been holding its own against other world currencies despite the global financial crisis. Latest reports have the dollar rising against the Euro. Despite the dismal US economy the dollar is still seen as a relatively safe haven by Interbank Forex traders.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

Crisis Years in the Making

The current financial crisis has been years in the making and the crisis is the product of years of reckless and irresponsible behavior by both government and financial institutions. Warning signs were clearly present in 2007 when the subprime mortgage ‘bubble’ burst. Throughout 2007 several major mortgage companies filed for Chapter 11 Bankruptcy and several venerable Wall Street firms found themselves in financial difficulty. Credit markets froze and interbank forex lending all but ceased.

Troubled Housing Market

The troubled housing market sent warning signs to Washington and ^] Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson expressed alarm about the dangers posed by the bursting housing bubble. Paulson stated, “The housing decline is still unfolding and I view it as the most significant risk to our economy. … The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth.”

The Crisis Escalates

Fast forward to 2008 and the crisis rapidly escalates. In March Bear Sterns, one of the oldest firms on Wall Street gets federal funding as shares plummet. Bear Sterns was acquired by JP Morgan Chase for $2 a share. In September rapidly deteriorating conditions prompt the Federal Government to take over Fannie Mae and Freddie Mac which at that point owned or guaranteed about half of the U.S.’s $12 trillion mortgage market. In mid September the crisis spiraled out of control with catastrophic events occurring daily.

Lehman Brothers and AIG Fail

On Sept. 14^th Merrill Lynch was sold to the Bank of America, and the next day Lehman Brothers filed for bankruptcy. On Sept. 16th Moody’s and Standard and Poor’s downgraded ratings on insurance giant AIG’s credit on concerns over continuing losses to mortgage-backed securities. The next day the Federal Reserve loans AIG $85 billion dollars to help the firm avoid bankruptcy.

Paulson Announces Bailout Plan

After a dismal week for markets Treasury Secretary Paulson unveiled his plan for a bailout. The plan was put to a vote in the House and failed 228 to 205. On October 1^st the Senate passes a revised bailout bill laden with tax breaks for special interests. On Oct. 3^rd the House passed the revised bill and President Bush sign the bill into law. It is expected to take some time before the effects of the bailout package are felt by credit and interbank forex markets.

Conditions continue to deteriorate and on Oct. 6^th the London market declines by 8% the largest fall in 20 years. Other European markets fell by a similar amount. On Oct. 6^th several other countries take drastic action to prevent financial collapse and unfreeze credit markets.

Credit Markets Frozen

The short-term lending market had frozen, and companies began to worry that they would not be able to get the loans necessary to pay their bills or make payroll. On Oct. 8^th Central Banks in Europe and the Federal Reserve announced coordinated rate cuts of half a percentage point. Despite early optimism the coordinated move did little to boost investor confidence and markets continued their decline. On Oct. 9^th the Treasury Department announced it was seeking equity stakes in some of the country’s banks, in order to inject capital directly into the troubled financial system. This move would partially nationalize banks, something that was unthinkable in the United States. The actions of the Federal Reserve affect all aspects of the world economy including the interbank Forex market. Despite the crisis the US dollar remains the currency of choice on interbank Forex exchanges globally.

Despite Action Markets Down

Despite drastic action by governments, credit markets were still frozen and the effects of the crisis started to creep into the day to day economy. Probably the most stunning news was that General Motors was considering bankruptcy. The already troubled US auto makers depend on consumer credit accessibility and frozen credit markets could spell doom for the auto industry.

Interbank Forex Markets Steady

The only good financial news in these troubled times is the fact that the US dollar continues to hold its value on interbank Forex markets and Forex trading. The dollar continues to hold steady against most world currencies and has gained against the troubled Euro. It would appear that Forex investors and traders are the only ones making any money in these troubled times.

Quick Forex Tip: The average investor usually participates in the interbank market through a broker who handles funds for a large group of investors. The large amount of money given to the broker gives him access to the favorable spreads available in the interbank market. For small investors there are a huge number of interbank FX reviews available online. These reviews give the average investor the ability to research the positives and negatives of the brokers reviewed. Most interbank FX reviews will detail customer service experiences, reliability and investment track records.

Crisis of Confidence

Most Americans believe the current financial crisis was caused by subprime mortgages and falling house prices but the root causes are much deeper. Despite the passage of a $700 billion dollar bailout bill there is a crisis of confidence in the US dollar and the US economy. Since World War Two the US has been an economic and industrial powerhouse. The current crisis has sent shockwaves through world financial markets including the interbank Forex and confidence in the stability of the American economic system has been seriously damaged.

The Crisis Spreads to Europe

The crisis quickly spread to Europe causing unheard of disruptions in credit markets, interbank lending, and the banking industry. Access to credit froze, banks ceased selling gold, Forex markets were unpredictable, and European governments were forced to inject unprecedented amounts of money into the financial sector. The credit freeze has deeply affected the banking sectors and the crisis of confidence in the US dollar limits both retail and interbank forex opportunities.

Looking For Someone to Blame

When things go horribly wrong it is human nature to look for something or someone to blame and the current crisis is no exception. Since the crisis started in the United States most European countries are placing the blame directly on the Unites States. Gordon Brown Prime Minister of the UK, our closest ally, has stated openly that his country’s financial problems are an import from the US. He did not explain, however, how the American government somehow forced British banks to write mortgages for more than the value of the homes being purchased.

Blaming the US

Some world leaders are openly taking pleasure in the American crisis. Vladimir Putin stated. “Everything happening now in the economic and financial sphere began in the United States. This is not the irresponsibility of specific individuals but the irresponsibility of the system that claims leadership.” German finance minister Peer Steinbrück said, “The origin and centre of gravity of the problem is clearly in the USA.”

European Perception of the Crisis

Somehow the perception in Europe is that the problems faced by the EU and the UK are actually American imports. Many European leaders such as France’s Nicolas Sarkozy take pleasure in discrediting the American economic model saying that the, “idea of an all-powerful market without any rules and any political intervention is mad . . . [and that] self-regulation is finished. Laissez faire is finished. The all-powerful market which is always right is finished.”It would seem that the European perception is that American markets operate ‘without any rules’ when nothing could be further from the truth.

What most critics fail to realize is that the current financial is global and any solution will have to be a cooperative effort among nations. Playing the blame game in a time of serious crisis only inhibits the search for a permanent solution. Despite the current economic crisis the dollar remains the currency of choice for both retail and interbank Forex exchanges.

Quick Forex Tip: Interbank fx trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank fx trading, s/he must do so through the use of a broker.

Sales of Gold

Current economic conditions in both the US and Europe have caused a slowdown in the sale of gold by banks. Sales of gold by European banks are expected to be lower this year since banks are trying to mitigate the risks of paper assets. Banks in Asia and the Middle East are expected to become buyers of gold to diversify away from the US dollar. The main reason cited for central banks holding gold is the instability of the US dollar.

Gold and Dollar Stability

Although the dollar has rallied against the Euro recently European banks are uneasy about the long term stability of the Dollar. The European Central Bank Gold agreement allows the sale of 500 tons a year but sales have fallen short of the ceiling placed on gold sales and current sales amount to 357 tons. Said metals consultant Philip Klapwijk, “Given the damage done to a lot of other paper assets that were formerly considered secure, there will be greater risk aversion among central banks.” This will only boost gold’s status within central bank reserves.” Germany’s Bundesbank, with the second largest gold reserves in the world after the U.S. Federal Reserve, announced that it would sell no gold during the next 12 months. After announcing the sale of 250 tons of gold the Swiss National Bank announced it had no plans to sell more gold.

US Dollar Questioned

Earlier in the year the Dollar slipped to record lows against the Euro and many European central banks are expressing doubts over the long term future of the dollar. Again Mr. Klapwijk states, “There are more and more questions being placed against the U.S. dollar and its role at centre of existing international financial system.” Since World War Two the US dollar has been the standard against which all other currencies are measured. The current crisis in the US has many questioning the wisdom of pegging currencies against the dollar. Even so the US dollar remains the currency of choice for Forex investors and interbank Forex markets.

Demand

Demand for gold is predicted to increase with corresponding rises in price. Financial concerns are making gold more attractive as a reserve asset for central banks. Gold is seen as a confidence building and stabilizing influence on a country’s currency. While gold prices are not expected to skyrocket as in the past, increased demand is expected to increase prices.

Effect on Interbank Forex

What effect this will have on the interbank Forex markets is open to wide speculation. Markets, including the Interbank Forex, are taking a wait and see approach due to the US financial crisis and concerns about the proposed bailout. The US bailout bill passed overwhelmingly in the US Senate and a vote is expected in the House of Representatives by Friday. Until then interbank Forex markets will probably remain in a state of limbo.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

European Lending Rates Jump

Key bank to bank long term lending rates in Europe jumped to their highest since 1995 from 5.142 to 5.237 a move sure to reverberate through Interbank Forex markets. The six month rate also jumped to 5.315 from a former rate of 5.290. European rates are fixed by the European Central Bank. (Euribor) It is becoming painfully obvious that the financial crisis is not limited to the US.

The Contagion Spreads

The US financial crisis has become contagious, spreading to European banks and financial institutions and Interbank Forex markets worldwide. In the UK mortgage giant Bradford and Bingley had to be rescued by the government. Shares of French bank Dexia tumbled more than 20% because of a newspaper report that the bank may launch an emergency capital increase. On Sunday the governments of Belgium, Luxembourg, and the Netherlands announced an 11.2 Euro bailout of one of Europe’s largest banks.

Highlights of the US Bailout Plan

Markets, including the Interbank Forex, have been in a state of disarray with global money markets waiting for the details of the proposed US bailout. The US congress is set to vote on the compromise bailout package on Monday, September 29^th. After almost a week of political haggling Democrats and Republicans have reached an agreement. Highlights of the bailout plan include;

• The government would have broad powers to buy billions in mortgage related assets.

• The plan lets congress block half the money. The government can access 250 billion immediately, 100 billion more if the president certified it was necessary, and 350 billion more with a separate certification.

• Executives of companies who benefit from the bailout will see limited compensation.

• The plan requires the government to try to renegotiate bad mortgages with the intention of lowering monthly payments.

• The government would receive stock warrants in return for assistance, giving American taxpayers the opportunity to share in future profits.

• After five years the government would submit a plan to congress on how to recover any losses from companies receiving assistance.

Financial analysts are hoping that the passage of the US bailout plan will bring a semblance of stability to global markets. With the crisis spreading well beyond the borders of the United States passage of the compromise bailout plan is seen by many as a way to stem the tide of bank failures in Europe. Credit markets and interbank forex lending have all been virtually frozen by the US financial crisis and it is hoped that the infusion of billions of dollars will cause credit to flow freely again. It is hoped that the bailout and other recent actions of the Fed will shore up the US dollar on both retail and interbank Forex markets.

Quick Forex Tip: The average investor usually participates in the interbank market through a broker who handles funds for a large group of investors. The large amount of money given to the broker gives him access to the favorable spreads available in the interbank market. For small investors there are a huge number of interbank FX reviews available online. These reviews give the average investor the ability to research the positives and negatives of the brokers reviewed. Most interbank FX reviews will detail customer service experiences, reliability and investment track records.