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Fed to Lower Rates to 0%

Jimmy Atkinson — Sat, 22 Nov 2008 19:25:00 +0000

The consensus among economists is now that the US Federal Reserve Bank will lower its benchmark interest rate all the way to 0%. The Fed Funds Rate currently stands at 1%, and two projected 50 basis point cuts within the next two months would bring the rate to its lowest level ever, where it could remain for as long as one year. Apparently, the concern among economic policymakers is that the sagging economy and falling asset prices will ignite a protracted period of deflation. Given the extent to which the Federal Reserve Bank as well as the Federal Government have already moved to stimulate the economy, it's unclear whether any further loosening will have an effect. Currency investors remain unfazed about this prospect, perhaps because the rest of the world is in equally dire straits, and foreign central banks are mulling proportionately drastic measures. Marketwatch reports:

"This [interest rate cut] move confirms a highly pro-active and aggressive central banking community and there will be more to come" from the Bank of England and European Central Bank, said one currency strategist.

US to Continue to Pressure China Over RMB

Jimmy Atkinson — Sat, 22 Nov 2008 04:57:08 +0000

After rising nearly 20% over the last three years, the RMB has virtually stopped appreciating against the US Dollar, perhaps as a result of the credit crisis. At the same time, the US exports sector- previously one of the few bright spots of the sagging economy- has begun to stall. US Politicians have taken note, and are now renewing their efforts to persuade China to allow its currency to rise further. They are also agitated about China's perpetually growing forex reserves (currently estimated at $2 Trillion), which are increasingly being deployed in sensitive areas. Meanwhile, the Chinese economy is growing at the slowest pace in years, and the Chinese government is resorting to desperate measures to prop it up. In short, allowing the RMB to rise, while placating US policymakers, is tantamount to economic suicide, and hence unlikely.

While other sovereign wealth funds have existed for nearly 50 years without controversy, "China appears far less likely than other nations to manage its sovereign wealth funds without regard to political influence that it can gain by offering such sizable investments."

Canadian Dollar Rallies on FX Market

Global Forex Trading Blog | GFT Forex — Fri, 21 Nov 2008 14:13:37 +0000

Loonie gains in currency tradingThe Canadian dollar is rallying on the FX market today. Thanks to some help from an improving stock market, sentiment is favoring the loonie in currency trading for the first time in quite a while.

However, the Canadian dollar is still a ways from parity with the U.S. dollar, and has fallen quite far from its decades-high peaks around the beginning of 2008.

This stimulation of the Canadian economy may result in dialing back speculation that the Bank of Canada will cut interest rates.

Forex Trading Terms: High Yielders

Global Forex Trading Blog | GFT Forex — Fri, 21 Nov 2008 14:09:19 +0000

High yielding currencies on the FX marketOne of the forex trading terms that you might have come across recently is "high yielders." This refers to currencies that have high interest rates attached to them.

Interest rates are set by central banks. The higher the rate, the higher the yield. High yielders are popular because they benefit from the carry trade. Low yielding currencies are used to fund their purchase.

During times of risk aversion, the risky process of borrowing to purchase a currency (and hoping to make money on the difference in interest rate) is shunned. However, when markets improve, traders feel more risk tolerance and high yielders are favored.

Stock Rebound Gives Life to Currency Market

Global Forex Trading Blog | GFT Forex — Fri, 21 Nov 2008 14:03:39 +0000

U.S. Dollar, Japanese Yen drop in forex tradingYesterday and earlier today, risk aversion was affecting the currency market and sending high yielders lower, as well as providing impetus for traders to turn to the U.S. dollar and the Japanese yen.

But, like all things in forex trading and other volatile markets, the story is changing. The latest news from the banking sector is sending the stock market higher, and that is improving risk appetite.

And as risk appetite improves, high yielders are more in demand as currencies like the U.S. dollar and the Japanese yen fall to the wayside.

Risk Sends Asian Currencies Lower in FX Trading

Global Forex Trading Blog | GFT Forex — Fri, 21 Nov 2008 12:44:54 +0000

Emerging market currencies hit by risk aversionEven though equities are rebounding around the world this morning, there is still a great deal of risk aversion on the currency market. And this means that emerging market Asian currencies are being hit in FX trading.

The forex trading forecast for Asian currencies is likely to remain somewhat negative, since many traders will want to wait and see how the global economy does. They also want to make safer plays until the recession ends.

Bloomberg reports on emerging market currencies in Asia:

``Sentiment is likely to remain negative on Asian currencies and equity markets, given concerns over the duration and depth of a global recession,'' said Jimmy Koh, head of treasury research at United Overseas Bank Ltd. in Singapore.

U.K. Pound Looks for Stability in Currency Trading

Global Forex Trading Blog | GFT Forex — Fri, 21 Nov 2008 12:40:47 +0000

Sterling finding its footing in forex tradingThe U.K. pound is looking for stability in currency trading on the FX market, and it looks as though it may be finding it. Even though things have been rough for the sterling in forex trading, the currency may be finding its footing.

Right now, the FTSE 100 is rebounding on the stock market, and there is hope that the large interest rate cuts made by the Bank of England will help the British economy.

As a result, the sterling is heading for weekly gains against the U.S. dollar and the euro in forex trading.

U.S. Dollar Pulls Back a Bit in Forex Trading

Global Forex Trading Blog | GFT Forex — Fri, 21 Nov 2008 12:36:18 +0000

Greenback drops a little in currency tradingYesterday, the U.S. dollar moved higher in forex trading on the currency market as risk aversion sent financial markets heading for safety.

With the U.S. stock market ending rather lower and high yielders like the the down under currencies struggling, the greenback gained more traction in currency trading.

Today, though, the story is a little bit different. Some stability has returned to the sterling in FX trading, and the euro is doing its best to move into the resistance zone.

JP Morgan Predicts that the Fed Rate Will Go to Zero

Global Forex Trading Blog | GFT Forex — Thu, 20 Nov 2008 14:12:14 +0000

Will we see 0% for the Fed?Will the Fed really be offering free money in the coming months? Some think so. JP Morgan is predicting that the Fed rate will be cut to 0% in the coming two months, slowly inching down in an effort to boost the U.S. economy.

Right now, there is some worry that deflation is about to set in, harming the U.S. economy, and inflation is likely to be used as a counter-strike. However, things may not work out perfectly for the Fed if this happens, reports Bloomberg:

``Taking the target rate to zero percent would not be costless for the Fed,'' Feroli said. Public confidence may drop ``if there is a perception that the Fed has `run out of ammo.'''

Indeed, dropping the Fed rate to 0% might be taken as a sign of defeat. And besides, what can the Fed do beyond that? Sure, it's possible to go negative and start paying people to take money, but that's getting a little extreme (and the scenario is unlikely).

At any rate, the Fed isn't the only country that's getting lower in terms of interest rate. The Swiss National Bank just cut its rate by 100 basis points, and both the European Central Bank and the Bank of England are conceding that they may cut rates.

And don't forget the Bank of Japan. It's practically at 0% already, with a rate of 0.3%.

Volatility and the FX Market

Global Forex Trading Blog | GFT Forex — Thu, 20 Nov 2008 14:05:21 +0000

The currency trading story changes regularlyOne of the defining features of the FX market is volatility. When currency trading, it is important to remember that the story can change rapidly. While this is true of all financial markets, the liquidity of the FX market makes it even more pronounced.

Keep in mind that a currency that may be gaining in the morning may be losing by the afternoon. And because the FX market is a 24 hour market, things can change again by evening and again by nighttime and then again by early morning.

Before engaging in forex trading, it is important to make sure that you understand how the market works, and that you can handle the risk involved.

ForexTradingJunction.com

Fed to Lower Rates to 0%

US to Continue to Pressure China Over RMB

Canadian Dollar Rallies on FX Market

See Also

Forex Trading Terms: High Yielders

See Also

Stock Rebound Gives Life to Currency Market

See Also

Risk Sends Asian Currencies Lower in FX Trading

See Also

U.K. Pound Looks for Stability in Currency Trading

See Also

U.S. Dollar Pulls Back a Bit in Forex Trading

See Also

JP Morgan Predicts that the Fed Rate Will Go to Zero

See Also

Volatility and the FX Market

See Also