Us to Have 40% Stake in Citibank

Markets have responded positively to the news that the US will have a 40% stake in Citibank calming fears of total bank nationalization. Interbank forex brokers were pleased with the news and the return to risk appetite. The Japanese Yen fell on Monday and surrendered some of its safe haven status on interbank forex exchanges.

Possible Austrian Credit Downgrade

The news affected both the dollar and the Yen as interbank forex brokers sought out higher yielding currencies. The Euro fell further against the dollar amid concerns about the possible downgrading of Austria’s AAA credit rating. Austria would join several Euro Zone countries with downgraded ratings. The US Federal Reserve Bank and the Treasury said that both agencies stand behind the US banking system.

Yen Pressured By Negative Economic Data

The Japanese Yen fell 1.1% against the Canadian dollar, 0.9% against the Swiss Franc, and 2.7% against the British Pound. The Yen was also pressured by dismal economic data and massive job losses in Japan causing the Yen to surrender some of its safe haven status on interbank forex markets.

Euro Surrenders Gains

The Euro surrendered gains against the US dollar and fell 0.2% to 1.2817. Comments by ECB President Jean-Claude Trichet pointed out the Euro Zone’s banking and economic problems. Interbank forex brokers have seen the Euro fall significantly during the global economic crisis. Interbank Forex brokers are cautious about more dismal news emerging from the Euro Zone and are waiting for the Ifo index on the German economy due on Tuesday.

Weekend Conference Disappointing

Interbank forex brokers were also disappointed with the results of a weekend conference of European leaders which failed to come to any agreement on how to address the ongoing Euro Zone recession. Ulrich Leuchtmann of Commerzbank stated, “There was disappointment that the main focus of the G20 meeting was on financial market regulation, which is not the most important problem at a time of global recession.”

Interbank forex brokers welcome the return to risk appetite which means increased profits for their respective banks and their investors. We can only hope this trend continues.

Yen Edges Higher

The Japanese Yen edged higher Monday after the weekend meeting of the G7 made no specific reference to the Yen’s strength on currency markets. Interbank forex brokers had been watching the meeting closely and many indicated that currency markets will take their cue from Equity markets. Interbank Forex markets had been concerned about possible intervention by the Japanese government.

Risk Aversion Pushing Yen Higher

The Yen rose in spite of bad economic news for Japan. Japan’s economy declined in the last three months of 2008 but the contraction was within expected ranges. Increasing risk aversion also helped to push the Yen higher on interbank forex markets. Interbank forex brokers often use the Yen as a gauge for risk aversion in currency markets. Yuji Saito of Societe Generale had this to say about the Yen, “Without a (G7) mention of the yen’s strength, caution on Japan’s intervention in the currency market eased and as a result the dollar’s gains were capped against the yen.”  Japan’s GDP declined by 3.3% in the last three months of 2008, its sharpest decline since the oil crisis in the early 70’s.

Pound Falls vs. Dollar and Euro

The Pound got pounded again against the US dollar and the Euro after the G7 meeting failed to address the Pound’s weakness. The Pound fell 0.78% against the dollar to $1.4242. The Euro traded at 89.80 pence, a 0.2% rise.  Interbank forex brokers were hoping the conference would address currency issues but the global economic crisis dominated the meeting. Interbank forex brokers have also been watching situations in Ireland and Eastern Europe that could increase the risk of sovereign defaults.

European Banks Put Pressure on Euro

Yuji Saito of Societe Generale said, “In addition to the weak GDP report in the euro zone, worries about losses among banks in Europe ahead of the earnings season are expected to emerge, which would put downward pressure on the euro.” Also of interest to Forex markets is a statement that indicated the G7 group would address any wild market swings. The statement released by the group said, “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange rate markets closely, and cooperate as appropriate.”

US Markets and Banks Closed Monday

US interbank forex markets are closed today for the Presidents Day holiday. Obama is set to sign the historic stimulus bill in Denver on Tuesday. Hopefully the effects will be felt quickly on interbank forex markets.

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.

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.”

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.

Dollar at 13 Year Low Against Yen

The US dollar hit a 13 year low against the Japanese Yen amid doubts about whether US measures to boost the economy will bring quick relief. At the same time the dollar achieved a 23 year high against the British Pound on interbank Forex markets. Many investors are bracing for the tough times ahead for the British economy.

All Eyes on Obama

The dollar dropped to 88.86 yen in Tokyo trading, down from 89.45 in New York late Wednesday, when it briefly hit 87.10, the lowest since July 1995. The euro slipped to $1.2972 from $1.3022 and to 115.27 yen from 116.49 in interbank forex trading. The dollar is expected to fall further is measures taken by the new Obama administration fail to revive the flagging US economy. Said on interbank Forex trader who wished to remain anonymous, “The power of balance in the currency market has been so unstable recently. So if doubts over Obama’s stance on the economy and markets emerge… players will have no choice but to buy the yen.”

Geithner Apologizes For Tax Transgressions

Markets for some reason are concerned about the appointment of Timothy Geithner after he admitted having failed to pay income taxes. At a hearing before the Senate finance committee Geithner apologized over past tax transgressions while promising to act with “strength, speed and care.”

Bank of England to Cut Rates Further

Markets remain concerned with the state of the British economy and many expect the Bank op England to cut rates further next month. In the last three months of 2008 the British unemployment rate rose to 6.1%, the highest in a decade. The pound fell to $1.3879 from $1.3957 in interbank Forex trading and on Wednesday the Pound hit a 23 year low.

Finance Ministers Call On Britain to Take Action

French and Irish finance ministers are calling on the British government to take action to prop up the Pound. The UK is seen as behind the curve in addressing the dismal state of the British economy and banking sector. Both Interbank and retail Forex traders will be watching the actions of the British government closely.