Financial Times Says US Credit Rating in Danger

All indications are that this week will not be a good one for the US dollar. It would appear that most forex traders and investors are subscribing to the ‘green shoots of recovery’ theory. A media report that said the credit rating of the US is threatened by huge deficits also put the greenback under pressure. Standard and Poor’s said that the costs of propping up government enterprises like Fannie Mae and Freddie Mac could cost the US 10% of GDP threatening the US’s triple A credit rating.

Markets in Buoyant Mood

The buoyant mood in financial and stock markets has also affected currency exchange rates globally. On Tuesday the euro to dollar rate rose 0.9% to a seven week high of $1.3695. The Pound was up 1.4% to $1.5336, it’s highest since January. The pound was bolstered by positive retail sales data, and stronger housing and industrial production figures.

Aussie and Kiwi Dollars Benefit From Risk Appetite

Changing currency exchange rates have also benefited both the Aussie and Kiwi dollars. The Aussie dollar rose 0.9% to $0.7647 while the Kiwi dollar rose 0.6% to $0.6049. The euro to yen rate rose 0.4% to 132.93 and the dollar to yen rate fell 0.4% to 97.18. The Australian dollar rose despite the country’s rising deficit and unemployment. A few traders are urging caution saying that economic figures are “less catastrophic” and do not point to global recovery.

Last Week’s Rally Extended

It would appear that last week’s rally in risk appetite has been extended into this week’s currency trading. US retail sales and industrial figures are expected this week and it remains to be seen how each set of data will affect currency exchange rates. Although some experts are advising caution it would appear that the ‘green shoots of recovery’ theory will dominate currency exchange markets.

Plan to Restore Investor Confidence

Tuesday the US government announced a $250 billion plan to help banks repair their balance sheets and restore confidence in markets. The government will inject capital directly into the banking system by purchasing preferred stock and warrants to purchase significant stakes across a number of banks. All of which should help stiumlate the interbank forex market The move is expected to bolster the US dollar providing Forex opportunities to investors.

Half of Funds Will Go to 9 Major Banks

Half of the $250 billion will go to nine banks, JPMorgan Chase, Citigroup, Goldman Sachs Group, Morgan Stanley, Bank of America Corp, Merrill Lynch & Co, Wells Fargo & Co, Bank of New York Mellon, and State Street Corp. Treasury Secretary Paulson pushed the top tier banks to participate so there would be no stigma for other banks associated with the plan.

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Markets Down Last Week

Markets around the globe posted record losses last week but following a meeting of Eurozone leaders over the weekend Asian markets slowly climbed and as of Monday Asia Pacific index gained 7.7% after dropping 20% last week ; the worst performance in its history. While stock markets remain volatile globally Forex opportunities are abundant on currency exchange markets.

Hang Seng Up

In Hong Kong the Hang Seng rose strongly in afternoon trading, and gained 10.2% in afternoon trading. Stock markets throughout Asia rose with the Singapore market gaining 6.6%, followed by Korea with a 3.8% gain. India’s Sensex gained 7.7%, China posted gains of 4.12%. Japan’

s stock market was closed for a national holiday but Japanese interbank FX traders remain optimistic.

Light Trading

Light trading in Asian markets indicates that Asian traders are waiting to see how the US and European bailout plans will affect Wall Street. Over the weekend European central banks suggested they would follow the UK’

s lead by buying stakes in struggling banks and underwriting interbank loans. The US bailout plan is slowly taking effect and it is hoped that recapitalizing banks will unfreeze credit markets.

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The Bailout Bill

Forex markets are wondering if the overwhelming passage of a revised bailout bill will have any influence on the House when the projected vote takes place Friday. No matter what action the house takes it is sure to make for a wild weekend in global markets including Forex markets. The US dollar currently is higher than 12 of the 16 most traded currencies. The strong dollar is offering investors many Forex opportunities and at present Forex markets remain relatively stable compared to stock markets, allowing for FX traders to take advantage of the current situation.

US Manufacturing Sector

The US also faced bad news from its manufacturing sector with the manufacturing index falling to its lowest level in six years. Weak demand for US products coupled with consumer uneasiness with current economic conditions, higher food and fuel prices, and the future for the manufacturing does not look good. US consumers saw any wage gains

made in the past few years disappear limiting consumer spending. This trend is expected to last until at least the end of the year and could result in more job losses. In the US consumer confidence is at its lowest since 2000.

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The Bush Bailout Plan

Wednesday night US president Bush addressed the nation concerning the proposed bailout of US banks and tottering financial institutions. Reaction was mixed and even some Republicans criticized the administration’s proposals. Bush urged immediate passage of the bailout plan stating “We’re in the midst of a serious financial crisis, and the federal government is responding with decisive actions.” Bush also stated that failure to pass the bailout plan could lead to a “long and painful recession.”

Because of the perception that the US will act quickly to address the crisis the dollar is holding its own and is providing investors many Forex opportunities.

The Financial Crisis and Forex Opportunity

The current US financial crisis has affected stock, commodities, and Forex markets worldwide. Confidence in the US dollar is waning with many worried that the bailout policies proposed could lead to a devaluation of the US dollar. The financial crisis could not be more ill timed with the US suffering massive debt from the War in Iraq, rising oil prices, and massive infrastructure damage from recent hurricanes.

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