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 The dollar is sliding back into a rapid down spiral as the United States enters a new era of extremely-low interest rates and forex investors reassess the currency’s worth in a drawn-out recession.

A day after the Federal Reserve adopted a near zero-interest rate policy to stimulate the economy, the euro jumped as much as 4 cents against the dollar, the largest single-day move since the euro’s birth in 1999. Against the yen, the dollar tumbled to 87.14, the lowest level in 13 years. The dollar was also weaker against the pound and the Swiss franc.

The dollar — which on Wednesday rose as high as $1.44 against the euro from $1.39, before closing at $1.43 — had enjoyed a surprising rally since September, after Lehman Brothers’ collapse forced hedge funds and other big investors to liquidate assets and return money to the United States.

The Dollar continued to strengthen even after the government’s initial plan to shore up the financial system foundered, reaching as high as $1.2453 on Nov. 20. That counterintuitive shift seemed to highlight the dollar’s role as a safe haven store of value in times of crisis, despite the recession. Things are bruising and shifting towards exactly the opposite side right now.

But the dollar’s brief appeal in recent months mainly reflected a lack of better options. While much has been made recently of the euro as a new rival, the currency used by 15 European economies has weakened as recession struck the Continent. At the same time, Japan and other powerhouses in Asia quickly succumbed to a global deceleration.

And while some economists are predicting a mild recovery in the second half of 2009 as the Fed’s actions and a $700 billion stimulus plan promised by President-elect Barack Obama raises demand, unemployment could yet hit double-digits.

Taken together, the effect is one of greater downward pressure on the dollar — a dynamic that economists expect will continue for the foreseeable future. Currencies normally reflect the underlying fundamentals of an economy, and slow, controlled declines or gains allow businesses and investors to plan rationally for the future. But even by the standards of currency markets, the whipsaw nature of the dollar’s recent movements has come as a shock to many investors who expected the dollar to stabilize at a stronger level.

http://www.nytimes.com/2008/12/18/business/worldbusiness/18euro.html?ref=business

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Posted on December 18, 2008
at 9:59 am
Written / posted by: John
Filed under: Credit Crisis, Currency Trading, News

Having fallen well below parity all together with the USD, the Canadian dollar is now being attacked on two fronts. First, there is the deteriorating economic situation. Prices for virtually all commodities, namely oil, have declined significantly this year, dealing a harsh blow to the natural resource-dependent Canadian economy. In addition, its largest trade partner, the US, is suffering from economic woes of its own and is in no position to support the Canadian export sector anymore. The result is increasing unemployment and the never seen before decline in factory production in a quarter of a millennium. The most optimistic economists are forecasting GDP growth of 0.0% in 2009. The second prong of the attack against the CAD is being waged unintentionally by the country’s Prime Minister, who recently suspended Parliament in order to avoid a no-confidence vote in his leadership. In short, bulls for the Canadian Dollar (not to mention democracy) don’t have much to be excited about these days. Bloomberg News reports:

“The global backdrop is bearish for the Canadian dollar and domestic numbers are merely piling on,”said a senior currency strategist. “No one is looking for reasons to buy the Canadian dollar right now. They want reasons to sell.”

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Posted on December 16, 2008
at 1:28 pm
Written / posted by: Piere
Filed under: Credit Crisis, Currency Trading, News

That banks are vulnerable organizations, has become clear to all of us. Frankly, banks are by definition unstable. The system has never been “perfect” and everybody, really everybody who was paying attention saw this crash coming. The post-Bretton Woods system in which debt (future prosperity) was going to serve as cover was doomed to fail from day one. Banks have always been insecure and now the monetary is jammed it will never really be safe to put your money on a bank account.

At this moment the situation is so that if a large bank falls, no ‘rescue plan’ will be good enough to save that bank. Each ‘rescue plan’ could lead to hyperinflation. Fortunately, it is also quite possible to bank without banks!

The Basic banks were a kind of market that mediated between borrowers and savers and we need to go back to that principle. A modern bank with its FRACTIONAL reserve principle, is unnecessary and dangerous. Ultimately, the fractional reserve principle was created so that banks could issue more loans and thus make more profit. Our banks can and are receiving interest on money they don’t have or own because they switched to this fractional reserve principle. A central bank is completely unnecessary, such institution solely exist in the grace of inflation and deflation.

Anyway, eventually, if you look trough all misleading constructions of modern banking its quite simple. Is it not high time for something new?

With the advent of modern means of online communication and collaboration, Web 2.0, it is very easy to continue without banks.

An alternative way of getting a loan: Social Banking.

Characteristic of Web 2.0 communication and collaboration means is that the facilities allow users themselves to produce results. Think of Wikipedia, Youtube, Digg, and so on. They are all so-called crowd-sourced systems with user-generated content, which means that visitors will do all the work. The concept I’m trying to get to is called Peer-to-Peer banking. At this time quite a number of successful Peer-to-Peer social banking systems have already been set up and and the conditions are better than normal banks. A peer-to-peer banking system is a market place where people directly borrow and lend money to each other. People can operate on mutually desired conditions. The best-known peer-to-peer bank is Zopa which already claims their safer than banks.

“There’s no smoke and no mirrors – unlike at a bank. Because banks use your money to make even more money for themselves. They lend some of it out, some gamble on the price of tin or the depreciating yen, and invested the rest in any other money-making schemes they can think of.“

Starting with social banking is simple. Its not harder than selling or buying stuff on Ebay. When you sign up for social banking your reliability and  identity will be checked carefully and you can only lend or borrow money when you have passed these tests perfectly. There are mechanisms to indicate how long you want to lend money and at what rates, in order to estimate reliability and to spread risks. When you don’t pay back lenders, just like any other defaulter, will get you an angry-looking team Yugoslavia’s in front of your door.

The benefits are enormous. Everyone knows exactly where his money goes and where it comes from. The return on savings is higher, partly because there are no expensive banks involved. 

At this moment, Peer-to-Peer banks have the disadvantage users will not be protected from the massive devaluation of the currencies, but In principle, the concept itself is very suitable for on the basis of a new currency to replace traditional banks. 

With its own currency and a smart implementation of the peer-to-peer banking concept, we could now do without banks. Think about it people and spread the word.

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Posted on December 15, 2008
at 8:20 pm
Written / posted by: John
Filed under: Credit Crisis, Sharp Observations

The stock markets fell down greatly today pushing the Japanese yen up to its highest level since mid 90’s against the U.S. dollar and the Great Britain pound as the GM and Chrysler chances to survive narrowed after the U.S. lawmakers failed to approve the bailout plan.

Unlike previous trading sessions, where the yen moved in a unison with the U.S. dollar as both were considered to be «safe haven» investments, now the yen is winning and the dollar is losing greatly. The  U. S. currency suffers from the big troubles with its economy — high job losses, low consumer, production and service sentiment indexes and now the possible downfall of the biggest automakers.

The yen looks more attractive than the U.S. dollar and some higher yielding currencies because Japan didn’t receive the same damage from the global financial crisis. And now the traders also shouldn’t be afraid of the currency intervention from the Japanese monetary authorities as Finance Minister Sh?ichi Nakagawa said today.

USD/JPY fell from 91.45 to 90.44 as of 9:32 GMT today after reaching as low as 88.60 — the lowest level since August 1995. GBP/JPY declined from 137.54 to 135.42, with the daily minimum lying at 133.16 — the lowest since June 1995. EUR/JPY didn’t break any significant records today but fell from 122.06 to 120.95 with the daily low at 118.21.

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Posted on December 10, 2008
at 1:49 pm
Written / posted by: Simon
Filed under: Credit Crisis, Currency Trading

The most recent monthly data shows that, the foreign exchange reserves of most developing countries are disappearing faster than they can be replenished. This trend is caused by the global credit crisis and because central banks have taken to deploying vast sums of capital towards the dual ends of stimulating their economies and propping up their currencies. The latter can be especially expensive, as countries like Ukraine and South Korea can attest. Both countries have spent 20% of their respective reserves to halt the decline of their currencies, and both abandoned such a strategy after accepting its futility. Ironically, there seems to be a direct correlation between dwindling forex reserves and a depreciating currency, as investor nervousness and currency devaluation reinforce each other. There is always a positive side on a negative trend for us forex traders as The Guardian reports:

China says its reserves are continuing to rise, with the chief economist at the National Bureau of Statistics telling Reuters they would exceed $2 trillion by the end of the year. Beijing [will] not resort to “panic selling” of reserves, instead maintaining a “prudent and responsible” stance.

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Posted on December 4, 2008
at 9:54 pm
Written / posted by: Simon
Filed under: Credit Crisis, Currency Trading, News