U.K. Announces Additional Bailout for Financial Market
Today, the U.K. has announced a new, massive bailout for the financial markets. The new program is means to be aggressive, and will set up asset purchases. Unfortunately, many of these assets are toxic, and that means that investors are wary of the plan.
Calculated Risk offers some of the details of the newly aggressive bailout plan in Britain:
Consumer car loans will be exchanged for government bonds in an extension of the Special Liquidity Scheme.
Northern Rock (state owned) will be required to provide more mortgages.
The Credit Guarantee Scheme will be extended until year's end.
Billions in mortgage-backed securities will be guaranteed.
Sterling falls in currency trading as plan is unveiled
This new plan offers further proof that the U.K. economy is in big trouble. Things haven't been improving, and this bailout of the financial market simply underscores the point. As a result, the sterling is dropping in currency trading on the FX market as economic recovery is seen as something likely to take place in the far distant future.
Up for Consideration: "Bad Bank" for the U.S.
As Barack Obama takes the Presidential Oath of Office today, many ideas are floating around with regard to what might be done about the economy. In many cases, there are concerns about bank bailouts and making efforts to shore up an ailing financial system. One of those ideas is that of a "bad bank" for toxic assets.
This bank would be a national bank (not a nationalized bank, like what is being done in Britain), and would house bad assets that are poisoning the balance sheets of many banks. It is hoped that if some of these assets are removed, banks will be solvent and begin lending again.
But this is not the only plan. Policymakers are also mulling over the idea of guaranteeing bank assets against losses and other aggressive action.
Oil Prices Bounce, Help Canadian Dollar in Currency Trading
Oil prices are seeing a bit of a bounce today, and that is helping the Canadian dollar in currency trading on the FX market. Indeed, thanks to the advance in oil prices, in forex trading the loonie has moved off of its six week lows against the U.S. dollar.
The Canadian dollar depends heavily on oil, since it is the main export from Canada. With oil futures rising back above $41 a barrel, it will provide some forex trading help for the loonie. However, the bounce is expected to be just that: a bounce. The Canadian dollar is expected to lose ground to the U.S. dollar again soon in currency trading.
Safe Haven Demand Drops on Economic Stimulus News
Even though both the Japanese yen and the U.S. dollar are up overall -- especially over this time last year -- they are having different experiences today. With the announcement of a bank rescue plan, and other pledges around the world for economic stimulus, the desire for safe haven is receding a bit.
Right now, risk appetite is making an appearance, and as a result the yen and the dollar are pulling back on the currency market. With safe haven demand down in FX trading, traders are looking to higher yielders right now, and neither the yen nor the dollar is one of those currently.
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