Pound at Seven and a Half Year Low

On Wednesday the Pound dipped to a seven and a half year low against the Dollar and the Euro amid concerns over massive losses in the British banking industry and a deepening recession in the Euro Zone. The Japanese Yen held firm against other major currencies bolstered by safe haven buying and concerns by Forex traders and investors over the UK banking fiasco and a fall in US shares.

Bank of Scotland Posts Biggest Losses in British History

Wall Street greeted the Barack Obama presidency with a record Inauguration Day drop in shares amid new signs the global bank crisis was far from over. The Bank of Scotland posted the biggest bank losses in British history and is facing a government takeover. The prospect of credit downgrades of several Euro Zone countries has Forex traders watching markets closely. European Union predicted Monday that the 16-nation euro zone economy will shrink 1.9 percent in 2009.

Many EU Countries Facing Downgrades

Countries facing downgrades include Spain, Greece, Ireland, and Portugal. There are rumors that Britain is also headed for a downgrade. Credit ratings downgrades can make it more expensive for countries to borrow money and often dampen investors’ enthusiasm for the country. The European Commission said that the EU is facing a “deep and protracted recession.” The EC also forecast that the economy in the 16 nations that use the Euro will shrink by 1.9% in 2009, with the entire EU contracting 1.8%. The figures are a drastic cut from its earlier forecasts of 0.1% for the Euro Zone and 0.2% for the European Union.

EU in For Prolonged Recession

Forex traders and investors have been flooded with bad news from the Euro Zone and the UK. Most economists believe that the EU and the UK face a long and severe recession which is bound to affect Forex trading for a prolonged period. The EU is also predicting that 3.5 million jobs will be lost in 2009 with a resulting drop in consumer spending.

Dollar and Yen Safe Havens

At present it would appear that many Forex traders and investors are seeking the safe haven of the US dollar and the Japanese Yen. Many investors are hoping that the Obama administration can reverse the global recession but most predictions for 2009 are not positive. 2009 promises to be an exciting year for those engaged in Forex trading.