Fed Says Economy is ‘Leveling Out’

Stocks extended recent gains and US Treasury prices declined affecting currency exchange rates. The Fed issued a positive but cautious statement saying that economic activity is ‘leveling out’ but that the economy is likely to remain weak ‘for a time.’ Kathy Lien of GFT Forex said, “The outcome of this decision is still much more dollar bullish.” Many analysts believe that last week’s trend will continue. Last Friday the US dollar rose on better than expected US employment data. Throughout the recession good economic news has pressured the dollar downward.

Fed to Extend Asset Purchase Progam

Some traders believe that the decision by the Fed to extend the asset purchase deadline indicates economic weakness and will cap dollar gains. Michael Woolfolk of Bank of New York-Mellon stated, “The Fed is not yet convinced that the economy is on solid ground,” and that Fed Chairman Bernanke “knows very well the risks associated with removing stimulus too quickly.” The Fed said it would extend by one month the program to purchase long-term government securities and will not increase the amount of the purchases.

Surprise Data From France and Germany

The euro to dollar exchange rate hit a one week high after Germany and France posted surprise data that indicated a return to growth. The greenback also felt pressure from the demand for higher yielding assets. After a weak performance in 2009 the Eurozone is expected to return to growth in 2010. The euro to dollar exchange rate was up 0.5% to $1.4270 and against the Japanese yen the euro gained 0.8% trading at $1.4270. The decision by the Fed to keep interest rates at their present levels stopped market speculation that the Fed will raise rates in the near future putting pressure on the dollar’s exchange rate. Kazuyuki Kato of Mizuho Trust & Banking stated, “The Fed move basically did not have enough impact to alter the market trend of funds flowing into riskier assets. The prospect that the Fed will keep rates low will likely be one factor causing dollar weakness in the long term.”

Dollar Holds Friday’s Gains

The US dollar held onto last week’s gains in early trading Monday. Improving US employment figures and positive manufacturing and housing data helped last week’s dollar rally. Although the dollar slipped slightly against the yen it rose against the euro and a basket of other major currencies. Martin McMahon of Credit Suisse stated, “We had a big move on Friday, so we’ll be seeing some consolidation today.”

Correlation Between Dollar and Risk Sentiment Breaking Down

Mr. Mahon also suggested that investors are waiting to see if last week’s dollar rally is a sign that the correlation between the dollar and risk sentiment is breaking down. Since the current recession began bad news has helped the dollar and good news has put downward pressure on the greenback.

Treasury Yields Help the Dollar

After hitting a high of $1.4448 last week the euro was trading at $1.4185 against the US dollar. The dollar fell 0.3% against the yen and traded at 97.30. The dollar index was little changed at 78.869. Some experts said that a rise in US Treasury yields helped the dollar and will attract investors making it easier for the US to finance its debt.

Fed to be Upbeat About Economy

This week’s meeting of the Federal Reserve is bound to affect currency exchange rates. Many analysts believe that the Fed will end its plan to purchase $300 billion of longer-dated Treasuries in September. Many believe the Fed will extend a separate program to boost the credit flow to consumers and businesses. Barclays Capital analysts believe that the closeness of the payrolls report and the anticipated Fed meeting explain the dollar’s rally. In a note Barclay’s Capital analysts said regarding the Fed meeting, “Our US economists expect no increase in asset purchases and a more upbeat tone on the economy. In our view this would likely be a USD positive and may herald a period where positive news for U.S. yields continues to be a USD positive.”

The Fed meeting begins on Tuesday and Forex traders and investors will be watching closely.

Twitter Widely Used and Popular

Twitter is a wildly popular micro blogging and social networking service. Members send short messages called ‘tweets’ which are short posts limited to 140 characters. According to web traffic analysis done by Alexa Twitter is one of the 50 most popular websites. Twitter was creates in 2006 and has steadily grown in popularity. Twitter was used by both candidates in the 2008 presidential election. On Election Day Twitter use increased by 43%. Twitter users blog about most anything and that includes currency trading.

Twitter Offers Forex Converter

Currency traders are now using Twitter to share information and tips. Twitter has an online currency converter that covers most major currencies. Many Forex brokers have integrated Twitter into their day to day operations. Twitter can also be accessed by many mobile devices making it convenient for currency traders who can follow the forex market from their phones. Since most new mobile devices have internet access currency traders can conduct business from anywhere there is a signal.

Brokers Use Twitter to Share Information With Clients

Twitter also maintains a forum specifically for Forex traders and the currency allows forex traders and investors to check current currency exchange rates in real time. Since currency exchange rates change several times a day Forex brokers are using Twitter to communicate with clients giving them up to the minute reports about currency exchange rates in real time. The currency converter available on Twitter is updated several times a day.

Many top Forex brokers are now sending clients regular ‘tweets’ with trading recommendations and the latest market quotes. Social networking is one of the most effective marketing tools available and is well suited to Forex trading.