Currency Conundrum

Rarely in recent times has there been as much volatility regarding currency markets as there are at the moment. Driven by a string of economic problems the euro is spiralling downwards, somehow managing to outrace sterling (deflated by the enormous government debt) to the bottom. Ironically, the dollar, which isn’t exactly in fantastic condition itself, is appearing stronger against these two currencies.

This poses a problem for US regulators, the dollar is as close to being a world currency as it’s possible to be, and the US is faced with the simple fact that there isn’t really anyone to sell to. The American government has been embroiled in arguments with the Chinese government over what the Americans perceive to be attempts to devalue the Chinese currency, but so far China has shown little sign of changing its policies, the sterling is plummeting and the UK government is too busy trying to rebalance the economy and fix the deficit to really encourage mass imports from the US and the eurozone is, according to some experts, on the verge of collapse.

Of course, the euro isn’t likely to fall apart, there’s too much at stake for all concerned if it does, but in the post-economic crisis world everyone is faced with the problem that they all want to be exporters. Germany is trying to remodel the eurozone in its own, fiscally conservative, image, and at the moment without a great amount of success. It is worth noting as an aside that German exporting companies are benefiting significantly from the problems with the eurozone, as their products are very cheap to foreign buyers.

Spread betting companies advise their traders to stay abreast with all the news that might affect their particular markets, and for currency traders that news could come from anywhere. Try Trade Fair for expert help and advice on spread betting – it can be a complex concept and helpful to go to people in the know. Obviously it’s important to keep an eye on European news, the dollar is bound to react to the impending reforms on US banks, and the attempts of the UK government to stabilise the deficit will also have a result. One important place to keep an eye, however, is on the far East. China has astronomical reserves of American dollars, and could, at any time, sell some of them off, reducing the value of the dollar. It also is likely, at some stage, to have to rebalance its economy and increase domestic demand which will require a strengthening of the remninbi. 

Of course, any such movement from China will send shockwaves around the world’s financial markets, but it is a fascinating time to be in forex.