The foreign exchange market remained highly volatile last week with the US Dollar starting weaker across the board to end the week on a stronger footing, driven by plans and announcements from the US Federal Reserve and US Treasury. The Euro dropped to 1.3255 levels after reaching a high of 1.3735. The Sterling Pound ended the week at 1.4320 after trading between the high and low of 1.4778 and 1.4266. The Japanese Yen dropped to 98.80 levels after reaching a high of 95.40. Finally, the Australian Dollar and Swiss Franc range traded between 0.6893 to 0.7093 and 1.1168 to 1.1435, respectively.
Calls for new global currency
Last week, China’s Central Bank proposed replacing the US Dollar as the international reserve currency with a new global system controlled by the International Monetary Fund (IMF), aiming to create a reserve currency that is disconnected from individual nations and is able to remain stable in the long run. China being the largest holder of foreign exchange reserves, around $2tn, of which around 80 percent is estimated to be in US Dollar, might be concerned about the potential inflationary risk of the US Federal Reserve printing money.
Despite the fact that any shift away from the dollar as a reserve currency would have a massive impact on the US markets, Tim Geithner initially said that the US is willing to explore China’s proposal to give a synthetic global currency a larger role in the international financial system. He also said that the future of the US Dollar in the world system would rest on the US government’s ability to overcome the financial crisis. However, he later mentioned that such a move could take years to implement and that dollar will keep its status as the top reserve currency for a long time. The comments had a major impact on the FX market as the US Dollar dropped substantially when the news came out.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment