The U
S dollar fell on Wednesday and reached a 2 ½ month low against the Euro after the Federal Reserve slashed interest rates to between zero and 0.25%. The Euro reached a high of $1.4192 after the Federal Reserve said it would use “all available tools” to combat the ongoing recession and slashed rates to between zero and 0.25%. The Fed also added that it was considering possible purchases of longer-term U.S. Treasury debt.
Traders Sell Dollars
The announcement had traders taking advantage of this Forex opportunity to sell off dollars helping the Euro gain 11% this month. Adarsh Sinha, currency strategist at Barclays Capital in London. Stated, “
The Fed had an explicit commitment that they will leave interest rates very low for an extended period and that’s quite negative for the dollar because of relative interest rates. I guess the question now is: is this the beginning of a big move for the dollar, say euro/dollar to $1.60?”
Dollar Falls Against Yen
The dollar fell 0.3% against the Yen to 88.70. Yen gains against the Dollar helped to push the euro down 0.5 percent to 124.75 Yen. The yen has gained in recent months as investors unwound carry trades, reducing exposure to riskier and higher-yielding assets as the financial crisis mushroomed. The Yen has provided investors with Forex opportunities in the past because of its low rates.
Bank of Japan to Reduce Rates
There is speculation that the Bank of Japan would reduce rates to almost zero following a two day meeting which ends Friday. Bank of America G10 currency strategist David Powell stated, “With rates in Japan now higher than Fed rates, this puts further downward pressure on dollar/yen. It also increases the possibility that the BOJ will cut rates by 20 basis points on Friday.” Some Forex brokers are wary about the risk of Japan intervening to rein in the yen’s climb, which is hurting the nation’s exporters.
Currency markets can be volatile and the global economic crisis has both traders and investors watching closely for Forex opportunities that present themselves on a daily basis. This week has been a busy one with several countries releasing economic data that could affect Forex opportunities and both traders and investors will be watching closely.
Quick Forex Tip: Currency trading in the UK is heavily influenced by the interbank market. Currency trading UK is regulated by the FSA. Regulation is much lighter in the UK and there is often very little difference between a regulated and unregulated broker. Outside the US, most regulatory bodies addressing currency transactions provide little or no requirements for brokers and regulation is nominal at best. Despite the criticisms of the FSA they do provide a measure of consumer protection and most reputable UK forex brokers are regulated by the FSA.
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