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!

Interbank Forex Affects Prices

Interbank Forex and lending have far reaching effects. The LIBOR or London Interbank Offered Rate affects lending rates in the wider economy. Both individual and business loans are tied to the LIBOR rate which is currently 1.18%. Interbank Forex involves the buying and selling of large lots of currencies and affects currency values worldwide. Most large banks maintain an interbank Forex trading desk and interbank Forex brokers have access to proprietary information unavailable to retail brokers and day traders.

Competition Ensures Fair Pricing

Like their retail counterparts, interbank Forex brokers research markets, political events, and monetary policies but have the additional advantage of access to information not available to the general public. Competition between banks guarantees fair pricing and tight spreads. Most day traders cannot access the same information available to interbank Forex brokers because clients at interbank forex desks tend to be the world’s largest hedge funds, mutual funds, and multinational corporations who have billions to invest.

Well Capitalized Brokers Have Advantage

A well capitalized retail Forex broker can use that capital to gain access to the interbank Forex market. The more capitalized the retail Forex broker is the more credit relationships they can establish which means they are able to access more competitive pricing for both themselves and their clients. When markets are volatile, as they certainly are now, banks must give their good clients competitive pricing in interbank Forex markets.

Credit Approved System Big Advantage

Another advantage that interbank forex brokers have is that the interbank forex market is a credit approved system where banks trade with each other based on established credit relationships. All banks have access to the best market rates but a bank must have a specific credit relationship with another bank to obtain those same rates. The larger the bank the better pricing they can access. The same holds true for retail Forex brokers; the better capitalized brokers will have better access to interbank forex pricing.

Despite the fact that the average retail forex broker cannot access the same pricing that interbank forex brokers can the interbank market ensures that the forex market maintains its integrity and fair pricing.

Pound Very Troubled

The British Pound has probably suffered the most of any major currency during the ongoing global financial crisis. The Pound has fallen 35% against the US dollar, 51% against the Japanese Yen, and 44% against the Euro on Interbank Forex markets. Interbank Forex brokers report that the troubled Euro has fallen 32% against the Japanese Yen, 19% against the US dollar and

Health of British Banking Sector Questioned

Recent economic data from the UK and interest rate uncertainties are, in large part, responsible for the Pound’s poor performance on interbank Forex markets. Many interbank Forex brokers question the overall health of the British banking sector and data shows the UK in a more severe recession than was previously thought. The Bank of England has been faster and more aggressive than its European counterpart in addressing the Economy and interest rates but is far behind the actions taken by the US Federal Reserve.

Rates To Fall Further

Even though the Bank of England’s rates are at a 300 year low at 1.5% most interbank forex brokers expect rates to fall even further. Gross Domestic Product shrank 1.5% in 2008 the largest fall since 1980. Unemployment is at its highest since 1997 and stands at 6.1%. Manufacturing output shrank to 6.9%, and Industrial output declined 7.4%. It has also been reported that consumer spending and confidence are declining further.

Nationalization Possible

In the UK the financial services industry represents a large part of the overall British economy and this includes the interbank forex market. While the government does not mention bank nationalization recent actions have caused banks to become more dependent on government rescue packages and the government now owns large stakes in the nation’s banks. If and when the recession ends it is thought that a nationalized banking system will not be as profitable as privately run banks and will provide fewer jobs.

Upcoming Elections Could Affect Pound

Another major factor affecting the Pound on interbank forex markets is the upcoming national elections. Prime Minister Gordon Brown’s Labour Party is falling behind in national polls. In western countries the state of the national economy can easily determine election results. It is expected that the Labour government will do everything within its power to stimulate the economy but some of these actions could hurt the Pound on interbank Forex markets.

Currency markets have been volatile resulting in turmoil in currency markets including the interbank forex. As of late interbank forex brokers have had an unenviable job of coping with these constantly changing conditions.