U.K. Pound Moves Up in Forex Trading

The U.K. pound is moving higher in forex trading today. After dropping from 1.49800 to 1.4835, the sterling appears to have found some support against the U.S. dollar in currency trading, and is moving toward 1.4900 again.

Part of the help offered to sterling right now in currency trading appears to be from the focus on the U.S. economy. Even though the economic forecast for Britain has been downgraded, the focus is instead on positive news out of the U.S.

Pending home sales data has shown improvement for the month of March, and that is providing a great deal of help for risk appetite. So forex traders are focusing instead on how recovery for the U.S. housing market might mean a shift to a desire to invest in riskier currencies, such as the pound and the euro.

Obama Set to Crack Down on Tax Havens

President Barack Obama is gearing up for a fight with Congress over closing some tax loopholes and getting rid of some tax deductions for businesses. The expected proposals are aimed at businesses and individuals that take advantage of low tax rates and tax havens. In some cases, these loopholes and havens mean lower revenues for the U.S. government. The idea is to reverse that and raise billions more in tax revenue. Stock Market Funding reports on the proposal suggested by President Obama:

The president's proposal would eliminate some tax deductions for companies that earn profits in countries with low tax rates, as well as consider U.S. citizens who use tax havens in the Bahamas or Cayman Islands guilty of violating U.S. tax laws. If Obama wins congressional approval for the changes -- and he faces a challenge on Capitol Hill -- it could deliver $210 billion in tax revenue over the next decade.

The Obama Administration insists that overseas tax benefits won't be completely changed, however. Besides, even though this overseas benefit would be revoked for some businesses, Obama does plan to propose that a research tax credit -- which is set to expire this year -- be made permanent.

As expected, business leaders and individuals who make use of tax havens are decrying the proposal. Also, there are some who believe that the tax plan doesn't go far enough to curb tax evasion behaviors.

In the end, though, it will be up to Congress to make the decision. The Obama Administration acknowledges that it has a tough road ahead, since many in Congress may be reluctant to revoke tax deductions and crack down on those that use tax havens. After all, these big spenders are often big campaign contributors.

Economic Data Helps Sterling in Forex Trading

Economic data is helping the sterling in forex trading on the currency market right now. The main bit of helpful data is U.K. Construction PMI. It has come in higher than expected, and this suggests that the contracts of the British economy may be slowing.

Additionally, cautious optimism from U.S. Fed Chair Ben Bernanke is also helping the sterling in forex trading. With the economy expected to begin a recovery this year in America, other countries should follow suit. And in currency trading, the U.K. pound is likely to benefit from the increased risk appetite that will result from economic recovery.

Right now the sterling has reached 1.5100 in forex trading. Support is expected at 1.5000, and there is some talk that the 1.5300 level could be reached relatively soon on the currency market.

Will Treasury Yields Send The Dollar Higher Against the Yen in Currency Trading?

Treasury yields have been moving higher, indicating that demand for notes is waning. As the economy looks for improvement and recovery from recession, "safe" investments like Treasury bonds will decline in popularity. This could mean good news for the dollar against the yen in currency trading on the FX market as risk appetite settles in.

The forex trading forecast for USD/JPY could possibly be one of strength. The Forex Blog reports on the correlation between Treasury yields and the dollar and yen in currency trading:

If the Fed limits its purchase of Treasuries, by extension, not only will this limit inflation, but also it will lead to higher interest rates on US government bonds, which should help prop up investor demand. One currency strategist observed that “The dollar-yen is very closely correlated with the back end of the yield spread.” In other words, as US long-term yields rise, so may the Dollar.

It will be interesting to see how things go in the coming months. The U.S. dollar is also receiving help today from remarks Ben Bernanke made before Congress. 

Forex Trading Basics: Commodity Currencies

One term you are likely to come across in forex trading is "commodity currencies". It is a good idea to have a basic idea of what these currencies are, so you get a better idea of how they behave on the FX market.

Commodity currencies

These are currencies that are tied to commodities. Countries that export natural resources and commodities rely heavily on commodity prices for their support. In turn, when these economies are doing well -- thanks to exports of commodities -- it supports their currencies.

Countries rich in metals (gold, platinum, copper, etc.), energy (oil, natural gas, etc.) and other commodities like coffee, timber, rice and livestock, rely on these commodities to provide the main economic driver.

When commodities do well (usually due to good global trade and higher prices), commodity currencies do well on the FX market. Likewise, when the global economy is in trouble, commodity currencies tend to be at a disadvantage.

China has been known lately for criticizing monetary policy moves made by the U.S. While falling short of naming the U.S. outright, it has been fairly obvious which country the Chinese are usually pointing fingers at. And the most recent announcement concerning quantitative easing is no different. Sure, Britain is practicing quantitative easing and the euro zone is considering it. But, really, it's fairly obvious that most of the remarks made by Chinese officials are aimed at the Federal Reserve.

China warns that quantitative easing is likely to result in currency devaluation and global inflation problems, reports Bloomberg:

“A policy mistake made by some major central bank may bring inflation risks to the whole world,” China’s central bank said in the report today. “As more and more economies are adopting unconventional monetary policies, such as quantitative easing, major currencies’ devaluation risks may rise.”

It is true that China has long wanted to keep its currency weaker than other major currencies. It gives the Chinese an edge in the global trade game, allowing them to offer cheaper exports and garner more worldwide business. However, there are some indications that China is gearing up to set up the yuan as a major reserve currency.

The Chinese have been arranging bilateral currency swaps with emerging markets (notably Argentina) in an effort to get the yuan "out there". While a rapid move to currency dominance is unlikely, it is clear that China has bigger plans than just being the world's exporter of cheap goods. The country has been diversifying its investment portfolio and making efforts to bring more prominence to the yuan. It may take a few years, but China is positioning herself now for the long-term.

Pointing out the weaknesses of the currencies considered "major" right now is only part of the plan. And if quantitative easing really does weaken the dollar, the world's reserve currency, I doubt China will be all that upset. After all, she is positioning herself to takeover if the greenback should fall out of favor.

U.S. Dollar Forex Trading Forecast

Many are wondering how the release of the stress test results will affect the U.S. dollar forex trading forecast. Currently, even though dollar weakness was apparent earlier, the greenback is moving higher in currency trading.

Bank stress tests are likely to have little effect on the U.S. dollar forex trading forecast right now, thanks to the preparation the government has made, leaking stress test results ahead of time, reports Kathy Lien in FX360:

Bernanke has said that stability in the U.S. economy hinges upon stability in the financial sector. The Obama Administration avoided disaster by preparing the market for the stress results and now that under capitalized banks are being forced to strengthen their balance sheets, the end result will be greater stability for the sector as a whole.

Now it remains to see what is ahead. Rate cuts in Europe, and unemployment data at home are likely to provide focus for the FX market.

Australian Dollar Gains in FX Trading as Jobs Data Turns Positive

The Australian dollar is gaining rather dramatically in FX trading on the currency market right now. It appears that the Australian economy is getting ready to pick up, and that is helping the Aussie in currency trading.

The most dramatic data is the jobs data. Employment data has turned positive, with jobs being added to the Australian economy. Additionally, reports Boris Schlossberg in FX 360, the Australian interest rate may have reached a bottom at 3%:

In fact today’s enthusiastic reaction to the employment data, suggest that the currency market believes that Australian rates may have bottomed. If that were the case than the Aussie would be the only currency amongst the G10 to maintain a 3% yield making it very attractive investment in an environment where the rest of the industrialized world has moved to a near zero interest rate policy.

This is good news for the Aussie in currency trading. Like it's down under counterpart, the New Zealand dollar, there is a definite interest rate advantage. It makes forex traders more eager to own Aussie assets, and it makes the carry trade (for those ready to take on more risk) even more profitable and attractive.

U.S. Payroll Data Sends U.S. Dollar Lower in Currency Trading

Good economic data is not helpful for the U.S. dollar these days. Indeed, the greenback is faltering in forex trading on the currency market on the news that non-farm payroll numbers have improved. Signs that the U.S. economy may be improving are cues to stop buying the dollar as a safe haven in currency trading. Kathy Lien reports on FX 360 about the connection between an improving economy and the dollar weakness:

Since risk appetite is the dominating theme in the currency market these days, the good number has prompted investors to sell the U.S. dollar and move into riskier, higher yielding currencies.

Some of these higher yielding currencies include the euro, which is being helped in forex trading by positive German trade data. Additionally, the down under currencies are benefitting as well.

As long as focus is on recovery, and the U.S. dollar is not needed for capital preservation, it is likely to see weakness in currency trading.