Forex Markets Volatile in 2008
2008 was an as
tounding year economically. The year saw the near collapse of the global banking system, stock and commodity markets ran amok, and Forex markets were extremely volatile. The US dollar ended 2008 up 7% despite the state of the US economy. Both the dollar and the Yen continue to offer investors Forex opportunities and safe havens in a time of economic turmoil.
Risk Aversion Props up Dollar
On the final day of trading in 2008 the dollar ended the year up 6.72% as risk aversion continues to prop up the dollar. The bankruptcy of Lehman Brothers, the takeover of Bear Stearns by JPMorgan Chase and Merrill Lynch by Bank of America, sent shock waved through the financial industry. The distress of the financial industry was the result of extreme risk aversion, fear, and interest rate spreads.
Pound and Euro Near Parity
Stock markets have calmed somewhat but Forex markets remain volatile. The Pound and Euro are a near parity as investors anticipated that the European Central Bank would be far slower to cut interest rates than the Bank of England. The Euro lost 4.3% against the Dollar while the Pound lost a staggering 26.5%. It remains to be seen just what Forex opportunities these currencies will offer in 2009.
Yen Strongest Currency
The Yen finished 2008 as the strongest currency but as risk appetite returns may lose some gains. Speculation that the Japanese government would intervene in currency markets turned out to be unfounded. The Yen continues to provide Forex opportunities to investors in 2009.
Dollar and US Treasuries Safe Havens
During the global financial crisis the Dollar and US Treasuries became the safe havens of choice and helped keep the dollar strong against other major currencies. What happens to the dollar in years ahead could very well be determined by what happens in 2009. The US has experienced massive job losses and consumer spending is weak. Hopefully we will see the US economy stabilize as it starts to reap the benefits of Quantitative Easing and President Barack Obama’s fiscal stimulus plan.
Forex markets have never been so volatile but savvy investors and traders will always find Forex opportunity no matter what economic conditions prevail.
