Dollar Gains Against Euro

On Monday (March 30) the dollar gained against the Euro as weak stock market performance and last weeks comments about European fiscal responsibility dampened investor confidence. During the past two weeks improved risk sentiment had benefited the Euro and other higher yielding currencies such as the Aussie Dollar and the New Zealand dollar.

Investors Seek Safe Haven

On Friday the Euro posted its biggest daily decline against the US dollar after the German Finance Minister said that the Euro could face major problems if Euro Zone states do not take the Euro Zone Fiscal Responsibility Pact seriously. Forex traders and investors reacted and the Euro fell on global currency exchanges. These factors combined with a Wall Street drop and falling bank shares sent forex traders and investors to the safe haven of the US dollar. Mitul Kotecha of Calyon in Hong Kong stated, “This rosy improvement that we’ve been seeing seems to be at least being re-thought for now and that’s come to the benefit of the dollar.”

Declining Euro Zone Industrial Orders

The Euro declined another 0.2% to $1.3260 after losing 1.5% on Friday as forex investors remained skittish after lower than predicted Euro Zone Euro Zone industrial orders and German inflation data caused market reactions. The Aussie dollar declined 1% and the New Zealand dollar fell 1.3%.

ECB Meets Thursday

The European Central Bank meets Thursday to review rates and is expected to drop rates to a record low of 1%. Forex traders and investors will be watching the ECB to see if it takes actions similar to the US Federal Reserve. Sue Trinh of RBC Capital Markets in Sydney stated, “The market will be on high alert for any comments that the ECB may be moving further into the realm of unorthodox monetary policy.”

G 20 To Meet

The G 20 nations will meet on Thursday and forex traders will be watching the summit with great interest to see what measures will be adopted to address the global recession. This week is sure to be an active one for Forex traders.

Euro Posts Largest One Day Drop

Today (March 27th) the Euro posted its largest one day drop against the US dollar in two months. Forex traders took note of a remark by Germany’s finance minister Peer Steinbrueck who said that fiscal irresponsibility could put the Euro at risk. The remarks combined with weak industrial orders triggered a sell off of the Euro.

German Impact on the Euro

Forex traders have long known that Germany has a direct impact on the performance of the Euro. Fabian Eliasson of Mizuho Corporate Bank in New York echoed this sentiment when he stated, “Germany has a very direct impact on how the euro performs.” US stocks fell on Friday and the Euro was down 1.9% trading at $1.3280. Late last week a few Forex traders had predicted a good week for the Euro and thought the Euro could trade as high as $1.40.

Euro Also Falls Against Yen

The Euro also fell 2.8% against the Japanese Yen and traded at 130.08 yen. The dollar gained despite reports that the greenback may be in trouble as the world’s reserve currency. Remarks by a senior official at Japan’s Ministry of Finance and senior Russian central bank official that the dollar will remain the world’s reserve currency boosted the dollar’s performance among forex traders and investors.

Yen Rallies

The Yen rallied after fund repatriation by Japanese investors and a change in tax regulations is expected to increase the flow of funds into Japan. On Wednesday remarks by U.S. Treasury Secretary Timothy Geithner stating he was open to the idea of increased use of an IMF currency basket as a reserve currency sent the dollar lower.  Some forex traders interpreted the statements as negative for the dollar.

The dollar has staged a comeback against the Euro but speculation about the future of the dollar’s status as a reserve currency has many forex traders worried.

Fed Plans Raise Concerns

On Friday the US dollar made slight gains but despite gains the dollar had its worst week since 1985. Forex traders and investors expressed concerns over Federal Reserve plans to purchase long term government debt. Forex traders fear the policy will erode the US dollar. The Fed stunned financial markets and forex traders then it announced plans to buy $1 trillion of government and mortgage backed debt in an attempt to cut interest rates and thaw credit markets.

Euro at Two Month High

Forex traders anticipated a flood of dollars and sold the dollar in favor of other currencies. The Euro climbed to a two month high of $1.37 and is on track for its biggest daily gain since 1999. Mike Moran of Standard Chartered Bank stated, “I think we will look back at this week and see it as seminal one because the Fed changed the way forex markets perceive monetary policy and the dollar.”

Production Figures Put Pressure on the Euro

The Euro fell slightly on Friday and traded at $1.3563 against the dollar. Economic data showed that Euro Zone production fell for the fifth straight month and put pressure on the currency. Forex traders noted that the Euro had made significant gains in the previous week jumping from $1.2922 to a high of $1.3737 in one week.

Central Banks Take Action

Any forex traders predict that a weak dollar will cause problems for other economies in both Europe and Asia. A weak dollar will raise the value of other currencies possibly causing deflation. Actions by central banks in Britain, Japan and Switzerland are taking action designed to address the problem of deflation.

ECB Expected to Lower Rates

The European Central Bank is seen as behind the curve in addressing economic problems and still has interest rates of 1.5% and forex traders see this as putting pressure on the Euro. Currency strategists at the ECB stated, “We believe the ECB will need to shift its rhetoric as soon as possible,” and also stated that the ECB will probably cut rates to 1% in April.

Many forex traders predict a good week for the Euro and Boris Schlossberg of GFT Forex believes the Euro may trade as high as $1.40 this week. Forex traders and investors will be watching the Euro closely.

Japan World’s Second Largest Economy

Japan has the world’s second largest economy and the Japanese Yen has long been considered a safe haven currency by forex traders and investors.That sentiment is changing as data reveals en economy and political system in real trouble. Forex traders noted that according to figures Japan’s GDP shrank by 12.7% in he last quarter of 2008.

Political Instability

The perception of political instability had many FX traders and investors concerned. The resignation of Finance Minister Shoichi Nakagawa for being drunk at a G 7 press conference reflected badly on Prime Minister Taro Aso’s already tenuous political position. In the past the performance of the Yen was closely linked to the performance of stock markets but many Forex traders now have doubts about this relationship.

45.7% Drop in Exports

Because of these economic and political problems forex traders are reexamining the Yen’s safe haven status. The worldwide recession has hurt Japan’s export based economy. The Ministry of Finance reported a 45.7% drop in exports between January 2008 and 2009. In 2008 household spending fell by 5.9%, the largest drop since 1977. Forex traders took note of a statement by Bank of Japan board member Tadao Noda who stated, “Domestic demand will probably weaken further and exports will continue to decline as overseas economies slow.”

Japan Hard Hit

Japan’s economy has been one of the hardest hit and many Forex traders now doubt the Yen’s future safe haven status. A large number of investors have based their financial future on the Yen and a freefall of the Yen would be catastrophic for them.

After five consecutive days of rising shares on global markets the Euro gained against the US dollar. Forex traders have noticed a rise in risk appetite as forex markets take their cue from equity markets. The Euro reached $1.30, its highest in a month.

A group of some of the G 20 finance ministers met in London over the weekend but did not address any currency issues and some analysts and Forex traders believe that money promised to help emerging economies and various stimulus programs had prompted the stock upturn.

European stocks rose 2% early Monday and pointed to a higher open on Wall Street. Daragh Maher of Calyon stated, “The G20 statement just reflects the mood of the market at the moment, if something changes on mood people are reluctant to stand in the way. For now that means the dollar weakens.” The rise in risk sentiment sent the Euro up 0.9%. British forex traders were pleased with a rise in the Pound which is up 0.4% to $1.4205.

The dollar was up 0.3% against the Yen and traded at 98.27. Both the Federal Reserve and the Bank of Japan have scheduled policy meetings this week and Forex traders are sure to be paying close attention to both. Many Forex traders expect central banks to take exceptional measures to address the ongoing recession.

Fed Chairman Ben Bernanke said on the popular news show 60 Minutes that he expects the recession to last for most of 2009 and that the banking sector in the US needs to be stabilized. Forex traders noted that the Swiss National Bank intervened in currency markets to weaken the Franc to fight deflation. The SNB is the first central bank to actively intervene during the current crisis.

Forex trading has been a difficult occupation lately and Forex traders have been inundated with economic data from around the globe. Hopefully in all that data will be some much needed good news.

Risk Appetite Returns

A rise in European share prices brought about a return of risk taking for Forex traders and investors. The rise in European stocks and US stock market futures trimmed gains made by the Dollar earlier in the week. Forex traders also took advantage of emerging currencies which pressured the dollar against major currencies. The news that Citigroup was profitable during the first two months of 2009 had some forex traders speculating that the worst of the crisis in the US is over which also put pressure on the dollar.

Britain Adopts Quantitative Easing

The British Pound remained under pressure and fell to a 5 1/2 week low against the Euro. Recently Great Britain adopted quantitative easing designed to increase the money supply which put further pressure on the Pound. Robert Minikin of Standard Chartered in London stated, “The global risk aversion bid for the dollar may be ebbing a little bit with equity markets performing somewhat better. Dollar strength on the emerging crosses are also seeing a significant correction and that’s spilling over into the majors too.”

Decline in Chinese Exports

Forex traders got an unpleasant surprise from China as data showed a decline in Chinese exports in February which limited gains by the Euro. Data showing an 8.0% decline in German manufacturing also pared gains by the Euro. The Euro rose 0.3% to $1.2714. Forex traders including interbank fx traders took advantage of opportunities offered by emerging currencies. The Hungarian Florint rose by 1.14% and the Polish Zloty rose 0.60%.

Pound Low Against Dollar and Euro

The Pound stayed low against the Dollar and Euro as concerns among forex traders about the BOE’s policy of quantitative easing, the state of the British economy, and the stability of the banking system all put downward pressure on the Pound. The Pound traded at $1.3658 against the dollar, a six week low.

Risk Appetite Seen as Positive Development

The return to risk appetite by many forex traders is a positive development after last week’s volatility. Some of the new developments indicate that some of the policies taken by several governments to address the global recession are starting to have an effect.

Dollar Falls Against Major Currencies

The US dollar fell against other major currencies on Friday as Forex traders reacted to massive US job losses. The US shed 648,000 jobs in February pushing unemployment to a 25 year high. Forex traders also reacted to rumors that job losses were more in the 1 million range and this put pressure on the US dollar.

Dollar Still Reserve Currency

In the past the dollar has benefited from bad news and its status as the world’s reserve currency and safe haven has benefited the dollar throughout the global recession. Michael Klawitter of Dresdner Kleinwort in Frankfurt said, “Does this move mean we’re in a clear trend once again, which is moving against the dollar? I would be cautious.” On Friday the dollar index had fallen 0.9% to 88.295 .DXY and there was a piece of rare good news for the Euro which rose 0.8% to $1.2665.

Swiss Franc Gains

The Swiss Franc gained broadly and many forex traders saw the Swiss Franc returning to its safe haven status. The dollar fell against the Swiss Franc by 1.1% and traded at 1.1557. The Euro also fell against the franc to 1.4643 francs a loss of 0.4%. Forex traders also reacted to statements made by a top International Monetary Fund official stating that the world’s developed economies were in the worst decline since World War Two.

Dollar Safe Haven to Return

Many analysts and Forex traders believe that global economic concerns and the worsening situation in Eastern Europe would eventually bolster the US dollar again. Chris Turner of ING in London stated, “The market had been expecting that big rate cuts from the European Central Bank and the Bank of England would provide the catalyst for the euro to break new lows against the dollar, but when that did not happen investors reversed their long positions.”

Rate Cuts by ECB and BOE

Forex traders also noted rate cuts by the ECB and BOE who cut rates by 1.5% and 0.5 respectively. The BOE also announced that it would take unconventional measures to increase the money supply. Last week was a very busy one for Forex traders as several countries released economic data. Forex markets quickly reacted to every piece of news keeping Forex traders on their toes.

The US dollar rose against the Japanese Yen on safe haven demand and remarks by Federal Reserve Chairman Ben Bernanke. Forex traders sought the safe haven of the dollar due to concerns about the US banking system. Forex traders also paid heed to Bernanke’s remarks to the US congress calling for resolute action by the government to pull the US out of the ongoing recession. Many Forex traders and investors are betting that the US will be the first nation to recover economically from the recession.

Dan Cook of IG Markets in Chicago stated, “The dollar is in great demand because of high risk aversion. There is still a lot of market uncertainty, a lot of volatility in the stock market. And the more uncertain it is, the better it is for the dollar.” Forex traders were concerned about insurance giant AIG posting the biggest quarterly losses in US history. The government recently gave AIG an additional $30 billion dollars and AIG was the recipient of earlier bailouts.

The US dollar rose to 98.24 against the Japanese Yen in late trading, The Euro was down and was trading at $1.2571. Equity markets rose earlier on Wednesday but fell due to dismal data from the US housing sector and a bleak outlook for the banking sector. The stick market was also concerned that Treasury Secretary Timothy Geithner failed to provide exact figures on how much it will cost the government to stabilize financial institutions. All of these factors sent Forex traders to safe haven currencies.

Forex traders and forex markets are also waiting for details of the ‘bad bank’ plan which would provide details on how banks would shed toxic assets. Melvin Harris of Advanced Currency Markets in New York stated, “People are awaiting this ‘Bad Bank’ plan. They’re looking for details … and how banks can start over. Once that happens, we’re going to see a complete reversal in dollar strength.”

Forex traders expect the European Central Bank to cut rates to a historic low of 1.5%. The Euro was pressured by concerns about struggling Eastern European economies. The only bright spot seemed to be the Aussie dollar which rose 1.5% against the US dollar.

This week promises to be a very volatile one on currency markets and Forex traders are expected to have one of the busiest weeks ever.

Economic Data Due

Forex traders have experienced volatile markets since the global recession reared its ugly head. In addition to tracking exchange rates forex traders must sort through reams of data from around the world and make investment decisions based on that same data. The coming week will be a busy one for forex traders as several countries release economic and banking data that will affect global currency markets.

Australia to Cut Rates

On March 2nd the Reserve Bank of Australia is expected to cut rates and many economists are calling for a 25 basis point reduction sending rates to a historic low of 3%. Australia has been hit hard by the global credit freeze. Australia depends on exports for much of its income and the global slowdown has had a negative effect on employment and growth. Forex traders will be watching to see what effect this has on the Aussie dollar.

Bank of Canada to Cut Rates

On March 3rd the Bank of Canada is expected to cut rates for the 5th time since October and many economists are predicting a cut of 50 basis points sending rates to 0.50%. Canada is experiencing a deteriorating economy and in December retail sales fell to the lowest point since 1991. Forex traders will also be watching the Canadian Central Bank’s decision with great interest.

Bank of England to Cut Rates

On March 5th the Bank of England is expected to cut rates by 50 basis points for a rate of 0.50%. The Pound has been in serious trouble on global currency markets and many economists believe the UK economy could worsen and expect the recession to be ‘prolonged.’ Many British experts expect deflation if the recession continues and some are calling for the BOE to adopt the policy of quantitative easing. Forex trading in the Pound has been weak at best.

ECB to Cut Rates

On March 5th the European Central Bank is expected to follow the BOE in cutting rates by 50 basis points for a rate of 1.50%. The deepening recession and banking troubles in Eastern Europe have taken their toll on the Euro and forex traders are sure to monitor the European situation closely.

US Non Farm Payrolls Due

On March 6th the US Non Farm Payrolls will be released and the news is not expected to be good. 645,000 jobs were lost in February, the worst monthly job losses since 1949. The unemployment rate is expected to reach a 25 year high at 7.9%. Forex traders expect the dollar to continue to do well due to the safe haven status of the US dollar.

Forex traders have a busy week ahead and must sort through all the new data and make investment decisions. Good news is hard to come by in today’s markets.