Forex Traders and the US Dollar

The recent plan by the US to buy 700 billion dollars worth of toxic debt from US banks has thrown Forex markets and traders into a state of bewilderment. With rising oil prices and an unresolved presidential election the future of the US dollar is uncertain. Although banks made temporary gains fx traders and investors are concerned because investors are concerned about the price at which banks may have to sell their assets.

Forex Trading, the US Dollar and Politics

Investors and Forex traders worldwide are waiting to hear the details of the bailout which are unclear. Another complicating factor is the political nature of the bailout with the Bush administration and congressional Democrats differing on who and what should be bailed out. Said senate majority leader Harry Reid of Nevada, “The Bush Administration has called on Congress to rubber stamp its bailout legislation without serious debate or efforts to improve it. That will not happen.” To complicate matters even further some senate Republicans are calling the Bush plan ‘Totally Unacceptable.”

Congressional debate on the issue is expected to last well into next week.

US Treasury Asks For Broad Powers

So far the US Treasury Department has asked for broad powers to buy securities over the next two years to stimulate credit markets. The financial crisis has caused the dollar to weaken against the Euro and Pound Sterling. Forex traders and investors are rightly concerned about massive deficits the US now faces. Analysts say that foreign investors will be increasingly reluctant to finance the US deficit at current exchange rates. The US now faces the largest budget deficit in its history.

Forex Trading and the Future of the US Dollar

Many analysts and fx traders predict a less than pleasant future for the US dollar which has been holding it’s own in FX markets. David Woo global head of foreign-exchange strategy at Barclays, the third- biggest currency trader states “The downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis.” Investors and Forex traders are concerned about the long term consequences of the US government’s unprecedented deficit. Said Geoffrey Wu, a London based currency strategist “Investors may start to worry about the amount of debt the U.S. is taking on and its impact on the dollar.”

Prompt Political Settlement is Needed

While the US dollar may have short term gains, most Forex traders and investors are concerned about the long term future of the US dollar. Congress and the Bush administration are expected to reach an agreement on the bailout by sometime next week. Until then any speculation about the details is just that—

speculation.