Flu Pandemic Raises Risk Aversion

Monday’s trading saw investors return to the safe haven of the dollar after news of a possible influenza pandemic sent investors scrambling for safe havens. The news affected global currency exchange rates sending the dollar up against the euro. Tuesday’s forex trading saw a slight rise in risk sentiment affecting the euro to dollar exchange rate.

Improvement in US Housing Market

Data released in the US showed the decline of US home prices slowing prompting many to believe that the worst of the US housing crisis is over. Concerns about the health of the US banking industry raised concerns among investors limiting gains in the euro to dollar exchange rate. US bank regulators told CitiGroup and the Bank of America they needed more capital following ‘stress tests’ of US banks.

Flu Pandemic Could Cost $3 Trillion WHO Warns

Both news stories frightened investors and affected currency exchange rates. James Hughes of CMC Markets stated, “The flu story and the story on Citi and Bank of America have spooked the whole market.” In Mexico 150 people have died from the current strain of flu and the World Bank estimates that a global pandemic would cost $3 trillion dollars and reduce global GDP by 5%. Several countries have reported cases of the same strain of flu that has killed so many in Mexico.

US Consumer Confidence Higher

Several other factors are affecting European currency exchange rates. Profits at Spain’s Spain’s BBVA declined and businesses at Deutsche Bank were strained. German inflation rose 0.7% while French consumer confidence rose slightly. While the influenza story and the US banks report caused a decline in European stock markets US stocks recovered  after data pointed to a larger than expected rise in U.S. consumer confidence.

Busy Week Ahead

This week is expected to be an active one in currency exchanges. Many reports from several countries are expected to bring news bound to affect currency exchange rates. Lately risk sentiment seems to change daily and this week will be no exception.

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Rise in German Investor Sentiment

The euro rose against the US dollar and the Japanese Yen on Tuesday as a rise in German investor sentiment boosted stock markets. The euro to dollar exchange rate showed a marked improvement for the euro. Concerns about the European Central Bank’s next moves trimmed the Euro’s gains against the US dollar.

Euro Bolstered by ZEW Report

The euro to dollar rate was $1.2938, up from a one month low of $1.2883. The euro rose 1% against the Yen at 127.75 and the dollar yen exchange rate rose 0.8% to 98.73. The euro to dollar got a boost from the ZEW report which showed increased German investor confidence. The report showed the first positive results since 2007 but many forex traders expect the Euro’s rise to be short lived.

Gloomy Predictions From the IMF

A report by the IMF projected that financial institutions will have to write down $4.1 trillion in assets to achieve global financial stability. Many economists believe the report shows that the global financial crisis is far from over. This report coupled with the uncertainty about the ECB’s future moves has put pressure on the euro to dollar rate. The ECB is expected to cut rates from 1.25% to 1.0% in May but it remains unclear whether the bank will take any unconventional steps like those of the US Federal Reserve.

Investors Waiting For ECB Meeting in May

Investor sentiment towards the euro to dollar rate is not positive. T.J. Marta of Marta on the Markets stated, “If the ECB comes together on quantitative easing, the euro will go down because the U.S. has already started. If they don’t, the euro will be punished because the ECB will be accused of not reacting to the crisis.”  Some believe that the euro to dollar rate could fall to $1.20 by mid 2009. For now investors are waiting for the ECB meeting in May.

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Yen at Six Month Low vs. Dollar

The Japanese Yen is now at a six month low against the US dollar and the Japanese economy is in a severe recession. Japan, which s fighting its most severe recession since World War Two, plans to spend $100 billion dollars to help its struggling economy. The rise in risk appetite has put pressure on the Yen as investors seek the forex investment opportunities offered by other higher yielding currencies.

Japan to Double Stimulus Spending

On Friday Japan will reveal the details of the plan and forex brokers expect Japan to double its stimulus spending to 4% of GDP. These actions are expected to affect the forex opportunities offered by the Yen which is now considered a safe haven currency. Traditionally a drop in the Yen signals increased risk sentiment as investors seek forex opportunities elsewhere.

$1 Trillion For IMF

Last week’s G 20 Summit in London raised risk sentiment after it was announced that $1 trillion dollars would go to the IMF to help developing economies. G 20 participants also agreed to renounce protectionism. British Prime Minister Gordon Brown stated, “Today the largest countries of the world have agreed on a global plan for economic recovery and reform.” The rise in risk sentiment affected global forex trading as currency markets took their cue from rising stock markets in the US and Asia.

Soros Praises Euro

The Euro got a boost from Billionaire investor George Soros when he stated that the Euro is “a tremendous advantage” for the countries in the Euro Zone. Soros stated that he believes that the US dollar may eventually be replaced as the world’s reserve currency. Fortunately his remarks had o effect on the dollar and the forex opportunities it has provided for many.

Optimism May Be Premature

Many economists and forex brokers believe the global economy has bottomed out and see increased forex opportunities in the near future. Others believe the optimism is premature and believe recovery will not take place until 2010. One thing remains certain; forex markets remain the world’s largest and with almost $3 trillion dollars traded daily forex opportunity is there for those with education, patience, and discipline.

Quick Forex Tip: There are many factors that affect currency exchange rates and those who want to trade forex markets should be familiar with them. Economic factors are probably the most important in determining the value of a currency. Political conditions can also affect exchange rates. Those who want to trade forex markets would be well advised to keep abreast of current political and economic events. Thanks to the internet, those with the right knowledge and an internet connection can join this exciting market and take advantage of the lucrative opportunities it can provide for investors.