US Government Impasse over Treasury Bailout Threatens to Destabilize Forex Markets
Though markets have hardly escaped difficult conditions altogether, we previously saw credit market tensions ease and broader liquidity in financial markets improve on the announcement of US Treasury plans. US Dollar Overnight London Interbank Offered Rates, or the rates charged for overnight lending between banks, have fallen over 300 basis points in a span of mere days. Though these numbers remain notably above the equivalent risk-free rates, we clearly saw signs of improvement in financial markets.
What Does it Mean for the Forex Trader?
If today’s price action in forex options is any indication, markets are once again gearing up for sharp intraday volatility across traded instruments. A flare-up in market tensions may be enough to initiate a renewed sell-off in carry trade pairs—leaving the Japanese Yen significantly higher while the high-yielding Australian and New Zealand dollars fall. We will track forex and financial markets here on DailyFX.com and keep traders updated on new developments in credit and currency trading.
Written by David Rodríguez, Quantitative Analyst for DailyFX.com