Swift Return To Risk Aversion
Equity markets remain unimpressed by the Obama administration’s stimulus and bank rescue plans. The return to risk aversion has been swift and Forex traders are seeking the safety of the US dollar and the Japanese Yen. Tuesday’s remarks by Treasury Secretary Geithner were seen as lacking detail and many Forex traders say the plan offers nothing new. Many analysts see Geithner’s and Bernanke’s plans as just more of the same offered by the previous Bush administration.
Markets Tense
Earlier in the week a short lived return to risk appetite had many Forex traders and investors dumping the dollar and the yen in favor of higher yielding currencies like the Aussie and New Zealand dollars. Despite figures that show a rebound in retail sales and lower than expected unemployment figures markets remained tense.
Lack of Confidence
Markets failed to respond to the positive figures which show a lack of confidence in the Obama administration’s bailout plans and policies. Nick Bennenbroek of Wells Fargo stated, “The dollar is getting support from a lack of belief in any good piece of economic data and lack of belief that efforts by the U.S. administration will pay dividends.”
Dollar and Yen Safe Havens
The Euro fell to $1.2728 against the dollar and the dollar fell to 90.35 against the Yen. Traditionally both the dollar and yen benefit from market volatility and risk aversion. While both are relatively low yielding currencies forex traders use them as safe havens in times of economic trouble. Both risk appetite and risk aversion are fueled by economic news and government economic policies and investor sentiment.
Economic Recovery A Long Way Off
Forex traders and investors now realize that the global economy will take longer to recover than was once thought. The US congress reached an agreement on the proposed $789 billion bailout package consisting of emergency spending and tax cuts. Voting on the package could take place as early as Thursday Feb. 19th.
Forex trading has been difficult in these tumultuous times and currency markets are constantly shifting. Once the US bailout package is approved hopefully markets will respond positively.
