Dollar Regains Lost Ground

The meeting of the BRIC (Brazil, Russia, India and China) nations has come and gone leaving currency exchange rates largely unaffected. Recent remarks by Russia’s president questioning the dollar’s reserve status caused the dollar to fall on Tuesday but on Wednesday the dollar regained some lost ground. Trading has been somewhat erratic as markets struggled to find direction and remained uncertain whether the dollar’s decline was over or had a little further to go.

BRIC Summit Fails to Address Dollar’s Reserve Status

The failure of the BRIC summit to issue any statements regarding the dollar slowed the dollar selling caused by the Russian president’s remarks on Tuesday. Masafumi Yamamoto of Royal Bank of Scotland stated, “At the end there was no strong comment to play down the role of the dollar.” Asian stocks were down as investors tried to make sense of conflicting US economic data causing many to doubt how fast the US recession is easing.

Risk Aversion Surfaces

Some risk aversion has surfaced sending the dollar to yen exchange rate to 96.00 and the Aussie dollar to a three week low of 76.00 against the yen. In early trading on Wednesday the euro to dollar rate rose 0.3% to $1.3883. Better than expected inflation data from the US was taken by forex investors as another sign that recovery is underway paring safe haven demand. May price data boosted expectations that US interest rates will remain low, Brian Dolan of Forex.com stated, “We’re seeing dollar weakness because the idea is that inflation is not pretty evident right now and that is seen as a positive in terms of the growth outlook and risk appetite.”

Currency Markets ‘Lack Conviction’

The Q1 U.S. current account deficit narrowed adding to market optimism and affecting currency exchange rates. Some experts said currency markets lacked conviction leaving investors and traders unsure of how to trade the dollar due to conflicting sets of US economic data.

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Record Drop in Industrial Production

A record drop in Euro Zone industrial production has put further downward pressure on the euro. Earlier the euro had been pressured by automatic sell orders as the currency hit $1.41 and the Euro Zone figures added to the Euro’s woes. Euro zone industrial production fell 21.6% from April 2008, a record drop. The Euro Zone figures are a sign that forex investment continues to decline in member nations.

Industrial Production Rises in China and Japan

In Asia Chinese industrial production rose more than expected in May and Japan’s industrial production experienced its biggest monthly gain in 50 years. Despite struggling US and European economies many investors believe that the global economy is on its way to recovery from the worst recession since World War Two. Many forex investors remain cautious due to rising deficits and consumer credit costs. Bill Schultz of McQueen Ball & Associates stated, “While this is recovery, and it’s better, it may not be the jumping-on point to a stronger” rise in economic growth.

G 8 Meeting Closely Watched

Investors and Forex traders are watching the current G8 meeting with great interest. Statements and actions from the group of finance ministers will undoubtedly affect global currency exchange rates. At the G8 meeting many participants feel that global recovery is ‘not fully underway.’ European automaker Volkswagen said it saw no signs of recovery outside of China which posted gains in industrial production. A European Commission report stated, “Despite some evidence of a slowdown in the pace of decline, the evolution of imports and exports of all major countries remains very negative. Moreover, the fact that unemployment continues to rise in most major economies, means the global recovery is still not fully underway.”

The euro to dollar rate fell 0.7% to $1.4000 while the pound to dollar rate was $1.6421. The dollar to yen exchange rate rose 0.6% to 98.14. Currency exchange rates are not on the formal agenda of the G8 conference which is a preparation for the July G8 summit.

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Investors Hope For US Rate Hike

The US dollar ended its recent gains on Tuesday as investors questioned whether the US would raise rates later in the year. Many forex investors are concerned that recent improvements in the US economy could justify a rate hike. Hopes that the worst of the credit crunch are over were raised after the US Treasury said that 10 of America’s biggest banks will be able to pay back $68 billion in bailout money received at the height of the credit crunch.

Traders Expect Weak Dollar Trend

The euro to dollar exchange rate rose to over $1.40 while the pound to dollar rate rose 1.4 percent to $1.6268. Some forex traders expect the dollar’s performance to be weak for the next few weeks. Michael Woolfolk of The Bank of New York-Mellon said, “I fully expect the dollar to trend weaker over the next several weeks unless big problems in Europe develop.” Recent US job figures boosted the dollar in recent trading sessions but investors remain concerned that the US may not raise rates.

Euro Zone Economy Still Weak

The pound to dollar rate was affected by better than expected UK housing data and a lull in recent political turmoil helped bolster the pound in currency markets. The euro to dollar rate was pressured by a sharp decline in German production suggesting that the euro zone economy is still weak. The euro was helped by hopes that Latvia may be able to avoid devaluing its currency. It has been estimated that Latvia’s economy may contract 18% this year.

US Deterioration Slowing

Investors remained wary of the dollar due to rate concerns. Jeremy Stretch of Rabobank in London stated, “Yes, the deterioration in U.S. data has slowed, but to suggest … the Fed is looking to take back some monetary easing before year-end is somewhat injudicious. It’s safe to say that market is getting ahead of itself.” Investors are waiting for the results of the US Treasury’s auction of 10 and 30 year notes to gauge rate expectations.

Markets have not reacted to the conservative sweep of EU elections but many experts expect currency exchange rates to be affected by expected shifts in policies.

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Liquidity Attractive Feature of Forex

A June 2nd story by the global news agency Reuters tells the story of investor Cenk Utkan who lost half his investment in emerging market hedge funds. The 33-year-old managing director of London-based Connexion Capital introduces institutional investors to hedge funds. After losing much of his investments Mr. Utkan turned to global currency markets citing their liquidity. Mr. Utkan stated, “In Russia, stocks got suspended. So I thought instead of locking my money up in a hedge fund, why don’t I go to the most liquid end of the market, which is the currency market?”

Investments Hammered By Recession

Mr. Utkan now traces currencies daily for his personal account. Mr. Utkan is not alone. Many small investors are dumping stocks, real estate, and other investments that have been hammered by the worst recession since World War Two. For these new forex investors liquidity is king. The currency exchange market is the world’s largest with over $3.2 trillion dollars traded daily. Currency exchange rates are always changing and forex markets are not subject to the same sort of regulations that govern stock and equity markets. Betsy Waters of Germany’s Deutsche Bank stated, “Retail investors around the world, particularly in countries where you have more controls over the equity markets, are definitely turning to FX.”

Number of Forex Traders Increases

At dbFX.com, the retail currency trading platform of Germany’s Deutsche Bank, volume has increased 37% in the first quarter compared with a year earlier. Other retail forex companies report a 30% monthly increase in new accounts for the last six months. Betting on currency pairs is not for the faint of heart but by using the leverage available to retail forex investors the rewards can be astounding compared to what equity markets offer. Potential investors are cautioned that leverage can be a double edged sword.

Forex Rewards Great

Although forex markets can be volatile with currency exchange rates changing several times a day those willing to educate themselves about this dynamic market and exercise discipline can reap fantastic rewards. There are many free real time currency converters available online including the popular XE currency converter and the Yahoo currency converter. Both are popular among forex day traders. There is no dearth of information available and we recommend the following sites-

www.fx-trader.info
www.forexopportunity.org
www.forexopportunity.net
www.interbank-fx.net
www.fxconverter.org

Quick Forex Tip: Forex trading offers investors a profitable investment option and can be one of the most rewarding opportunities available to the average investor. Major attractions are the 24 hour a day availability of forex markets, low dealing costs, high leverage margin and high liquidity. Currency trading forex can be learned quickly and easily. There are several free reputable courses available online and many online forex dealers provide demo accounts where novice traders can learn the market before risking any real money.