Forex Investment and Currency Trading

The G7 Communiqué clearly reflected the exceptional circumstances the markets have been exposed to over the past few months. It is also encouraging that the G7 Communiqué specifically committed to not let any systemically important firms to fail. The other key points from the Communiqué were: a commitment to unfreeze the money markets. The lack of detail on how this will be achieved was a disappointment. There was a firm commitment to boost bank capital. This will be crucial for the recovery from this crisis. It also said that depositors would be protected and that there would be a concerted effort to re-start the mortgage and other securitised markets. Although not directly mentioned we would also expect to see more action to boost economies, through both monetary and fiscal easing. Perhaps the need to directly say this in the Communiqué was not judged to be great given the co-ordinated interest rate cuts from central banks earlier last week. Market expects more easing action in the weeks ahead. Overall the markets have reacted well to the G7 Communiqué, with the USD giving up ground from last Friday and markets generally showing less signs of panic.

Markets are also reacting well to the plans announced by the euro zone economies to: 1) guarantee until the end of 2009 bank debt issues with maturities up to 5 years, 2) allow governments to buy bank stakes (as is being seen this week in the UK, 3) recapitalise “systemically” critical banks in distress. The UK plan for sector wide recapitalisations is widely seen as the best approach to help restore normality to the markets. Newswires suggest that the plans for recapitalising various UK banks will be revealed first thing today. Now that the euro zone countries have reached an agreement on a similar approach to the UK this should help sentiment and to some degree improve growth prospects there. Already this morning the EUR has been benefiting from this news. The news that Australia will guarantee all bank deposits is also boosting sentiment towards the Australian dollar (AUD) this morning.