Fed to Continue Mortgage Backed Securities Program

On Wednesday (Sept. 23rd) the dollar hit a new low against the euro and declined against the Japanese yen after the US Federal Reserve said in a statement that the US economy is recovering and that the Fed will continue, but slow, the purchase of mortgage backed securities. As expected, the Fed will keep rates at near zero for an extended period of time. Dan Cook of IG Markets in Chicago stated, “This continues the theory of ‘green shoots. We didn’t get anything from them today that will change direction.” Cook also stated that the Fed’s decision to prolong the Mortgage Backed securities program was widely expected. Cook said, “They don’t want to shock the market just by stopping them.”

Risk Appetite Spurs Dollar Selling

The euro was up 0.2% and traded at $1.4842 after reaching a high of $1.4842, the highest since September 2008. The dollar vs. yen rate fell 0.1% to 91.04. The dollar index, or DXY, which tracks the dollar against six other major currencies, fell 0.2% to 75.981.Currency traders are selling the dollar in favor of higher yielding assets and currencies. After the Fed statement many forex traders expect dollar selling to continue. Michael Woolfolk of BNY Mellon stated, “We see just some fine-tuning of the economic outlook. And now that the risk of the Fed meeting has passed, people are comfortable returning to the trend of selling the dollar. That’s the bottom line.”

Global Stocks Up

World stocks hit their highest in nearly a year and both European and Asian shares were up prompting a rise in risk appetite among investors. On Tuesday U.S. Treasury Secretary said that the US economy was at the “beginnings” of recovery and that the key to recovery is to ensure that any recovery is self sustaining. Some investors remain cautious in advance of the G 20 meeting later this week in Pittsburgh. Most currency traders do not expect the G 20 summit to disrupt current positive trends. Ian Stannard of BNP Paribas said, “Overall the FOMC and the G20 are unlikely to disrupt the recent positive tone in asset markets and that’s likely to see the trends in currency markets resume.”

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.

Declining Stocks, Commodities, Gold Spur Safe Haven Demand

Last week’s big winners, the Aussie and Kiwi dollars fell for the third straight day against the US dollar as declining stocks, commodities and gold spurred safe haven demand. The Federal Open Market Committee (FOMC) meets Tuesday and Wednesday to decide monetary policies putting downward pressure on both currencies in advance of the meeting. David Tien of Fischer Francis Trees & Watts stated, “What’s happening right now is consolidation in front of the FOMC, not that there is any view, whisper or chatter that they are going to change anything. I attribute it to sensible risk management. If you caught the move, why risk taking it into FOMC?”

Profit Taking In Advance of FOMC

The Aussie dollar fell 0.6% to 86.24 cents, down from a high of 86.75 cents last week. The Kiwi dollar fell 0.4% to 70.66 cents after hitting a high of 70.93 cents. About the Aussie dollar Besa Deda of St. George Bank Ltd. Stated, “The Aussie will take much of its direction from offshore developments, particularly the way investors feel about the global economic story. We might see a bit of profit taking ahead of the FOMC.”

Fed May Discuss Quantitative Easing Exit Strategy

Many experts expect the Fed to discuss exit strategies from quantitative easing. Phil McHugh of CurrenciesDirect stated, “The recent dollar strength coming back into play has been attributed to this weeks FOMC interest rate meeting in the US. The expectation is growing that the Fed will discuss exit strategies (from its massive economic stimulus programs) in the near future and this will signal a hawkish tone with the potential for interest rate rises to follow,”

G 20 Prompts Investor Caution

In addition to the FOMC meeting forex markets will be paying close attention to the G 20 summit taking place in Pittsburgh on Thursday and Friday. In the past forex trading has been volatile in advance of G 8 and G 20 meetings. US President Barack Obama has said he will push G 20 leaders for a reshaping of the global economy. It looks like a busy week for forex markets.

Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.

Dollar at One Year Low

The already beleaguered US dollar fell to a one year low against a basket of currencies on Wednesday (Sept. 16th). Higher global share prices pared safe haven demand as investors sought higher yielding assets. The Japanese Yen reached a seven month high against the greenback after Japan’s incoming finance minister said that a strong yen had advantages for the Japanese economy. The euro to dollar rate hit a nine month high of $1.4715. The last time the euro hit $1.47 was in September 2008.

Link Between Wall Street and Risk Appetite

Massive US deficits also caused investor concern but higher stocks were the main driver of risk appetite. Ronald Simpson of Action Economics stated, “There’s still this persistent link between Wall Street and risk. With stocks going up, it continues to be very difficult for the dollar to rally.” Earlier in the year many analysts thought that the link between stock markets and risk appetite were weakening but that assessment proved to be premature. Traditionally the dollar trades lower when stocks perform well.

Japanese Finance Minister Will Not Intervene

The Japanese yen to dollar rate fell 0.9% against the yen to a seven month low of 90.13. The yen made gains after the incoming Japanese finance minister said he was opposed to intervention as long as market moves remained moderate. An unnamed trader in London stated, “It’s significant that Japanese officials don’t see the need to intervene at the moment … they’re not particularly worried about a strong yen. So the market is taking dollar/yen lower to see what’s around the 90.00 yen area.”

Pound May Hit $1,70 in the Near Future

Some currency experts are predicting the Pound to dollar rate will hit $1.70 in the near future. Karen Jones, a London based analyst, said, “Pound-dollar has sold off to its 50 percent retracement of the recent leg higher. “Given the recent weakness of the U.S. dollar, the risk has increased for the upmove to then reassert” towards $1.7040- $1.7050 in the next three months.

Quick Forex Tip: Euro currency trading requires a lot of research and investors must keep track of economic information from the twelve member nations. The economy of just one nation can affect the euro’s exchange rate.  In 2010 political uncertainty and deficit concerns about Greece caused the euro to fall considerably in global forex markets. Euro currency trading can be exciting and very lucrative for investors who have done their homework.