Both the euro and the sterling are lower today in forex trading as the U.S. dollar moves higher across the board. Uncertainty has made a return to the currency market as concern over the state of the global economy remains, in spite of leaders' assertions of "economic green shoots" and indications this past weekend that G8 leaders think that the recession is over.
Instead, there is concern that things aren't all the rosy. Commodity prices are dropping, and there is a movement toward safety as risk aversion sets in. In currency trading, the euro and the pound are both falling to the U.S. dollar. GFT's Boris Schlossberg reports and issues facing the currency market in FX360:
The weakness in commodity prices which has had a near parabolic run, in the past several months, also helped pressure the risk currencies lower. As we noted earlier, “ Oil has finally run into serious resistance at the $70/bbl level as investors question whether the rally can be sustainable under the current economic environment. With gas prices rising towards the $3/gallon level, at the same time as US unemployment approaches 10%, the likelihood of reduction in consumer demand appears to have increased.”
Bank of Canada Concerned About Loonie in Forex Trading
The Bank of Canada is becoming concerned about the loonie in forex trading on the currency market. Even though the Canadian dollar has been down recently in currency trading against the U.S. dollar, the fact remains that the loonie has appreciated a great deal since the beginning of the year (especially in the last three months).
With commodity prices rebounding to a certain degree, and with risk appetite generally improving in the short term, it is little surprise that the loonie has been making such strides in forex trading. However, this development is concerning to the Bank of Canada.
The Bank of Canada has not interfered in the currency market since 1998, and is unlikely to do so now, but one never knows what could happen if Canadian leaders decide the loonie is becoming dangerously popular.
Do G8 Leaders Think that the Global Recession is Over?
This past weekend, leaders from the G8 countries met to consider the global economy and talk about financial issues. One of the topics under discussion was formulating a plan to begin reversing recent economic stimulus spending.
While nothing definitive has been decided upon, the fact is that G8 leaders are already thinking of ways to reduce the impact of the debt hey have incurred in the name of stimulating the economy in the face of a global recession.
Now, thought, with "economic green shoots" emerging, there is talk of what to do now that economic stimulus is no longer needed in such large amounts. This is likely to mean that, long term, the U.S dollar and the Japanese yen will weaken. However, right now, it appears that the markets are not so sanguine. Uncertainty is still the name of the game, and the greenback and yen are having success today in currency trading.
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