ECB Rate Cuts Expected

It has already been an exciting week for Forex markets and all eyes are on the European Central Bank whish is expected to significantly cut rates in an attempt to stimulate the Euro Zone economy. The US dollar continues to provide a safe haven and Forex opportunities for traders and investors.

Consumer Spending Down

The dollar strengthened following better than expected economic data and more clarity from the Federal Reserve on their plans to stimulate the economy. The December retail sales report is due for release and unless there is surprise data consumer spending is expected to be negative for the sixth straight month.

Bernanke Outlines Plan

Federal Reserve Chairman Ben Bernanke outlined his plan in a speech at the London School of Economics. Bernanke talked about additional tools available to the Fed, spoke about an exit strategy and offered suggestions on how the incoming Obama Administration should use the remainder of the TARP funds. Bernanke created a new name for his program—credit easing. In contrast to Quantitative Easing, which focuses on the liabilities portion of the central bank’s balance sheet, credit Easing focuses on expanding the asset side of the balance sheet. Bernanke expects interest rates to remain low for an extended period of time.

Weak Growth to Keep Inflation In Check

Inflation does not seem to be a concern because the Federal Reserve projects that weak growth will keep inflation in check. Markets quickly responded to Bernanke’s speech and investors took advantage of the Forex opportunities offered by the dollar’s strength. Also adding to the dollar’s rally was the fact that the US trade deficit narrowed in the month of November to the smallest level since June 2003.

UK Trade Deficit Highest In 300 Years

One of the biggest stories in the news was that the UK trade deficit for the month of November hit the highest level since the country began keeping records in 1697 over 300 years ago. According to the British Retail Consortium, retailers suffered the worst Christmas on record. The Japanese Yen gained against all the major currencies but the biggest gain was against the British Pound. Against the Yen the Pound is at its lowest in 30 years. The Yen continues to offers investors with some Forex opportunities.

This week promises to be an interesting one and investors are sure to be on the lookout for any Forex opportunities that may arise. At present all eyes are on the European Central Bank and economists are speculating on how many basis points the bank will lower rates.

Fed and European Banks Take Action

It is hoped that the recent coordinated rate cuts by the US Federal Reserve and European Central Banks will thaw frozen credit markets globally. The credit crisis has been trickling down into the everyday economy. Corporations are finding it difficult, if not impossible, to obtain short term loans for everyday operations and consumers are feeling the pinch in the form of tightened credit for major purchases such as autos and appliances. Despite a dismal economy the US dollar continues to hold steady providing investors with plenty of Forex opportunity.

Banks Slash Rates

The central banks slashed rates by half a percentage point and at present it is not clear how long it will take for these cuts to affect credit markets. “These credit market conditions did not happen overnight, and it’s not going to be resolved in one night, either,” said Robert Dye, senior economist for PNC Financial Services Group. Who often covers the global interbank forex marketplace. Moody’s Investors Service predicted a spike in credit defaults by risky corporate borrowers making lending a less than attractive enterprise.

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Too Little Too Late

The recently passed $700 billion dollar bailout which was supposed to rebuild economic confidence instead triggered massive sell offs in global markets. Investors feared that the plan was too little and too late. While markets around the world fell the US government worked to inject more money into the world’

s banking system, including liquidity needed in the world interbank forex market as well as loosen up frozen credit markets.

Treasury to Increase Bond Sales

The US Treasury Department named a former Goldman Sachs executive Neel Kashkari to oversee the new program. The Treasury Department also announced it would increase bond sales to pay for the huge bailout package recently approved by congress and hastily signed by President Bush. The US Federal Reserve increased a short term loan program to $900 billion dollars. Despite all these moves world markets remained in chaos. Despite economic fears currency markets still offer investors Forex opportunities and the strong US dollar is offering many investors a safe haven.

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