Forex trading

Once again the online currency trading has its eyes on Ben Bernanke. Currency traders are preparing for volatility in the 'majors', the 5 major currency pairs; because today and tomorrow the Fed chairperson is to partake in the testimony for two house committees as part of the Congress half-yearly reports.

This time expected issues would be the raising of the discount interest through the FED last week, and the pressure for politicians (Democratic) to ensure that the job market improves before the midterm elections at the end of November.

Increasing the discount rate by the Fed was especially surprising because of the timing. Why not wait until the next policy meeting? Will the American central bank signal that banks should prepare for the normalization of credit provision, the reduction of incentive measures through the FED?

In addition, the discount rate is not the same as the -famous-Federal Funds Rate, which is meant when one speaks of "the" interest rate. The discount interest is the interest that the Fed charges on loans it has granted to the banks. The federal funds rate is the interest rate, which is charged by banks on the use of mutual funds by the Central Bank. In any event, we have the influence of both interest rates on the credit provision by the banks. (If it is more expensive for banks to borrow, it is also more expensive for businesses and consumers).

These half-yearly reports of the two House Committees through the Fed chairperson, will still provide volatility in the currency market, because the questions posed by members of the committees are often unexpected. Bernanke's answers can then in turn contain hints about the monetary policy of the central bank over the coming months.

The Democratic policies in the committees mainly concern the recovery of the job market. They want to know what the Fed intends to do about the slow, unstable recovery of the job market and if Bernanke plans to increase the interest rate in the near future. According to Mark Gertler, a professor of economics at New York University, Bernanke will probably repeat that the ‘near zero’ interest rate will remain the same for a long time to come, “until some signs of a significant pickup in employment growth."

Furthermore, various sources show that many analysts expect that this pledge will be met. This means that if he does not repeat this pledge, the financial markets will see an increase in interest rates in the near future, as the dollar would significantly increase.

At least, we see more upside potential for the dollar than downside, but caution is advised. For as said: the online currency trading often makes strange leaps in these events.


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