Fed to Change Policies as Recovery Takes Place

The US dollar pulled back from a 14 month low on Friday after remarks by Federal Reserve Chairman Ben Bernanke who said that the Fed will tighten monetary policies when recovery is apparent. The Canadian dollar rose as data showed that Canada added sic times as many jobs than expected in September and a huge fall in unemployment throughout Canada. The greenback also pulled back from a two week low against the euro and also gained on the Japanese yen.

Low Rates and Quantitative Easing Dollar Negative

Bernanke also said that the Fed must continue to stimulate the economy but also said that the Fed cannot do so indefinitely due to inflation fears. Low interest rates and quantitative easing have put downward pressure on the dollar during the current recession. Vassili Serebriakov of Wells Fargo stated, “The mere fact that Bernanke mentioned tightening in his speech, especially given the fact it’s towards the end of the week, provided some excuses to take profits on short dollar positions. The market has been running with the idea that the Fed is going to be on hold for a very long period of time, probably longer than a lot of other major central banks.”

DXY Gains

On Friday the ICE Futures U.S. dollar index (DXY) rose 0.4% to 76.251 after hitting a 14 month low of 75.767 on Thursday. Some currency experts said that Bernanke was only stating the obvious and believe the Fed’s next move will be a rate increase in the third quarter. The Canadian dollar hit a one year high after Canadian data showed job gains of 30,600 in September. Earlier predictions had pegged job gains at 5,000 and the news was a pleasant surprise for Canadians. The US dollar fell 0.5% vs. the Canadian dollar and traded at C$1.0464 after falling as low as C$1.0426.

Dollar Gains on Yen

The dollar vs. euro gained 0.3% and the euro traded at $1.4750. The dollar also gained against the Japanese yen posting a 1.2% gain at 89.47 JPY.

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.”

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.

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.

Shariah Compliant Investments Total Over $2.7 Trillion Dollars

Forex trading has become wildly popular worldwide and the Islamic world is no exception. It has been estimated that the amount of money invested in Shariah compliant investments totals over $2.7 trillion dollars. Shariah compliant simply means that the investments comply will religious law of Shariah law. Many investment funds that are Shariah compliant usually have Muslim clerics as paid consultants. Several investment houses use compensated Muslim clerics including such investment giants as Standard and Poors, Dow Jones, Deutsche Bank, Goldman Sachs and many others.

Shariah Compliant Financial Institutions

As can be seen the Shariah compliance finance market is huge and enables those of the Islamic faith to invest in a religiously and socially acceptable manner. Muslims living in non Muslim countries are allowed to use regular banks and financial institutions when there are no Shariah compliant alternatives available in that locale. Once a Shariah compliant financial institutions and banks are available the devout Muslim is obligated to use them.

Shariah Law and Forex Trading

There are several forex brokers and traders that specialize in investing according to Shariah law. Shariah compliant forex trading forbids the receiving and paying of interest or swaps while buying and selling on forex exchanges. According to The Accounting & Auditing Organization For Islamic Institutions; “SWAPS are not permitted in the forms in which they are practiced in commodity exchange”

Shariah Compliant Market Set For Huge Growth

Since Islamic Shariah law forbids the paying and receiving of interest Muslim forex traders will use Shariah compliant swap free trading platforms for their forex trading. It should be noted that these same trading platforms are open to anyone regardless of religious affiliation. These Shariah compliant accounts are not necessarily free from fees and commissions.
Because of the immense wealth in the Middle East and other Muslim countries Shariah law compliant forex brokers and traders have become big business in the world of forex. Shariah compliant brokers can easily be found online. As was stated before at present Shariah-compliant investments total over $2.7 trillion and this number is expected to grow by several times the present amount within a few short years if present trends continue.