Investors Continue to Buy Dollars

Despite the global economic crisis the US dollar has remained surprisingly strong on currency markets including the interbank Forex. Many Forex traders and investors have continued to buy dollars to avoid risk. The dollar remains the world’s reserve currency and continues to outperform the Euro and the Pound.

Dismal US Employment Figures

All that could change because of recent figures released showing a loss of 240,000 non farm jobs, the largest loss in seven years. The US labor market continues to deteriorate and in the last three months the US has lost 651,000 jobs. This recent information sent shock waves through currency markets including the Interbank Forex. Michael Woolfolk, senior currency strategist at Bank of New York Mellon stated; “The report shows the labor market continued to deteriorate at the start of the fourth quarter and we have to keep in mind that it doesn’t yet reflect much of the job losses on Wall Street.”

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Low Oil Prices Inspire Confidence

New York stock markets showed positive gains as the lowest oil prices in more than a year inspired investor confidence. The Dow rose 240 points having been down as much as 380 points in the late morning. Stocks were down in morning trading as investors responded to a pair of weak manufacturing reports, Merrill Lynch and Citigroup’s losses and the decline in oil prices. Oil prices continued to decline after the government’s weekly inventory report showed a larger than expected gain in crude and gas supplies. Perceptions of slowing demand have sent oil prices lower than the all time high of July, 11^th.

Fear of Recession Looms

The decline is seen by many as another indication of a global economic slowdown. Despite recent good news there is still a fear of a global recession with some saying the US has already entered a recession. Many analysts say that market volatility is here to stay. Said Gary Flam, portfolio manager, Bel Air Investment Advisors, “To a certain extent, we’re in the middle of a hurricane, “It will pass eventually and we will get through it, but there’s been a lot of damage.” Credit markets remain frozen affecting interbank Forex markets.

Factory Production Lowest in 34 Years

While investors have welcomed recent government actions the negative tone of markets reflect the fact that the effect of many programs will take months to be felt. Recession fears sent stocks plunging Wednesday with the Dow falling 733 points making the session the second worst ever on a point basis. Adding to the bad news the Federal Reserve announced that factory production fell by the largest amount in nearly 34 years. The fall was blamed on the effect of hurricanes Ike and Gustav had on Gulf coast industry. The Philadelphia Fed index, a regional reading on manufacturing fell to an 18 year low. The Index had an original prediction of a decline of negative 5 while the actual figure was a whopping negative 37.5 far exceeding the original forecast. Despite the negative economic indicators the US dollar is still holding it’s own on interbank Forex markets.

TED Spread Hits Record

Lending rates improved slightly with the overnight lending rate falling to 1.94% down from 2.14% late Wednesday. The 3 month LIBOR fell to 4.50% down from 4.55%. The TED spread which is the difference between what banks pay to borrow from each other for three months and what the Treasury pays narrowed to 4.11% from 4.31%. The spread hit a record 4.65% Friday and the wider the spread the more reluctant banks are to lend to each other. This is certainly not good news for credit markets or interbank Forex markets.

Interbank Forex and Lending

Although the performance of markets this week has been hopeful the long term does not look positive. Negative economic indicators and recession fears are looming in the background and psychology plays a big part in market performance. The positive effects of many bailout programs will take months to be felt and investors are sure to be in for a wild ride. Interbank Forex lending is important for Forex traders and markets. Fortunately for Forex investors’ currency does not fluctuate as wildly as stocks and securities and many Forex investors have made impressive gains despite the global economic crisis.